4 Smart Ways to Invest $1,000 in 2023

Whether you've got $1,000 or $10 to invest, what matters is getting started.

If you've got $1,000 to invest in 2023, there are several routes you could take. The right option depends on your financial situation, your tolerance for risk, and your knowledge of different markets. You don't have to just pick one either, quite the opposite. Building a diversified portfolio with exposure to different asset types is a great way to reduce risk. Here are four smart ways to invest in 2023.

1. Build up your emergency fund

Strictly speaking, putting money into a savings account isn't truly investing. But having cash socked away to tide you over in the event of an emergency is one of the foundations of successful investing. If you don't have three to six months' worth of living expenses in an accessible account, prioritize this over your investment goals.

The reason? Let's say you dive in and invest $1,000 on the stock market today. In a few months, a recession hits and the stock market plummets. That's not all. Your company announces it is downsizing and you find yourself with no job and no spare cash. You might be forced to sell your investments at a loss in order to cover everyday expenses. Hopefully that scenario won't unfold. But if it does, you'll be glad to have an emergency fund to insulate you against the worst of it.

Similarly, if you have high-interest debt, you could earn higher annual returns by paying it down than you'd get from many investments. As Shark Tank judge Mark Cuban said recently, "If you're paying 15% or 20% in interest, if you pay that down, you just earned 15% or 20%."

2. Max out your tax-advantaged accounts

Tax-advantaged accounts are investment vehicles that offer tax benefits. They work in different ways, but there are usually limits on how much you can contribute. Some let you defer your taxes until your retirement, while others qualify for tax exemptions.

Three common tax-advantaged accounts to consider are:

• 401(k): You won't pay tax on your contributions until you withdraw your funds with this employer-sponsored retirement plan. Some employers will match a percentage of what you contribute, which is essentially bonus money for your future.
• Individual Retirement Account (IRA): The two most common types of IRA are traditional and Roth, and the main difference between the two is when you pay taxes. On a Roth IRA, you invest your after-tax dollars, but won't owe tax on your withdrawals later in life. A traditional IRA lets you invest pre-tax dollars, and defer your taxes until you retire.
• Health savings account (HSA): HSAs let people with high-deductible health plans contribute pre-tax dollars. It was designed to cover medical expenses, but you can also use an HSA to save for retirement.

That's just a quick run down -- you'll need to investigate the ins and outs of each one in more detail to find out what might work for you. But in principle, making the most of these investments could help you reduce your tax bill today or in the future. Ultimately, it means your invested dollars will go further.

3. Invest in ETFs

You don't have to be an expert stock picker to invest in the stock market. If you've never bought stocks before, exchange-traded funds (ETFs) are a great way to get started. An ETF is a fund of stocks that you can buy just as you would a stock. Some ETFs are also known as index funds because they track a specific index, such as the S&P 500.

Others are managed by a fund manager and you can choose the type of investment you go for. For example, you might look for one that's focused on a range of large companies. Or you might want an ETF that's heavy on tech companies, emerging markets, or specifically U.S. companies. ETFs come in many flavors, and you'll need to think about which ones suit your investment priorities. Check out some of these top ETF brokers for more info.

4. Invest in real estate

You may be surprised to learn that you don't have to own property or land to invest in real estate. If you have $1,000, you might put it into a real estate investment trust (REIT). It's basically a company that owns a portfolio of income-generating real estate. You'll be one of many investors, and that money gets pooled to buy and manage real estate.

Again, there are a whole mix of types of REIT -- from those that specialize in offices or industry to those that focus on retail or hospitality. There are pros and cons of REITs, as with all investment types. But if you want to diversify your investment portfolio in 2023, REITs make real estate more accessible to the average investor.

Bottom line

All investments carry risk, and we don't know what will happen to the economy in 2023. Historically, the S&P 500 has generated average returns of around 10%, but that includes some years where it's fallen and others where it has gained significantly more. The important thing is to think long term. That way you can wait out any dips and benefit from the good years.

If you invest $1,000 in 2023 via any of the options above, you'll be taking a great step toward building wealth. Bear in mind that there's no magic formula when it comes to investing. It isn't about getting lucky or jumping on the latest trend. The biggest trick is to consistently invest and give your investments time to grow.