The first step is always the hardest; this holds true for life, but also for investing. In this article, you will learn some fundamental rules to keep in mind when growing your wealth – and we will also share some exciting ideas on how to invest 1000 Euros!
Key rules for investing 1000 Euros
If you saved up 1000 Euros that you want to invest, then first of all – congratulations! Saving 1000 Euros and being ready to invest is a good step toward building your financial wealth. To ensure you have the best conditions to continue down that path, here are some critical rules that could help you on that journey:
Invest regularly
Depending on your level of income, it could take quite a while to build up 1000 Euros to invest – so be proud of that achievement! Yet, it’s also wise to keep in mind that this investment must happen regularly for it to generate the returns that you likely wish to see. An excellent way to ensure regularity is by automating your savings and investing.
You could achieve this by setting up a savings plan where your broker deducts money every month from your bank account, or perhaps via a standing order. Keep the concept of “out of sight, out of mind” at the forefront of your thoughts and prioritize this.
Depending on what asset class you invest in, another option is Dollar Cost Averaging (DCA). If you invest the same amount regularly into stocks, for example, where prices fluctuate, then your cost for each share will even out over the longer term. This is because you not only buy when the stock is high, but you also purchase when it is low.
Chop it up
Investing 1000 Euros doesn’t necessarily mean you have to wait until you have the entire amount saved up. Depending on your financial acumen, it might be more challenging to have money just sitting in the bank and waiting to be invested. If it takes a couple of months to amass the funds, you are also potentially missing out on interest you could have accrued during that time period.
That’s why it’s worth considering the idea of investing your income as it arrives. That way, you might invest 1000 Euros in five segments and see your portfolio increase steadily over time.
All in one or diversify?
Is it better to invest all the money into one asset class or split it between different asset classes? Ultimately, this depends on your investment goals and risk tolerance.
Characteristics of going ‘all-in’ on one investment:
- You can leverage any industry knowledge you might have
- Potentially higher returns
- Easier to keep track of your portfolio
- Higher exposure to market risk, sector risk, and company risk
Characteristics of a diversified portfolio:
- Potentially less return than singular investments
- Low risk exposure thanks to different markets, sectors, and companies
- Ideally low correlation between different asset classes
By investing exclusively in one asset, you can generate higher returns. For example, if the asset’s value rises by 10%, your portfolio will also rise by 10%. However, the opposite holds true as well. Negative value movements affect your holdings just as much – which can be stressful.
On the other hand, diversification is ideally achieved by investing in a mix of different asset classes, such as stocks, bonds, real-estate, and P2P lending. If one particular asset rises in this situation, it has fewer positive and adverse effects. In addition, by mixing different asset classes with low correlation, one part of the portfolio might experience a downturn, but another one may showcase positive performance – therefore balancing itself out.
Overall, this all depends on what type of investor you are, along with your level of risk tolerance – so there is no right or wrong answer!
How to invest 1000 Euro in stocks?
If you want to invest 1000 Euros in stocks, then as a first step, you will need a brokerage account. There are many ways to open one of these accounts, be it online, with your bank or even via a mobile app.
Next, you need to decide if all your money should go into a single stock or multiple stocks to spread the risk. Once you have decided, all that is left to do is to buy your chosen stocks and watch your portfolio grow.
Invest in index funds / ETFs
While picking stocks can be fun, you might want to save yourself some work and get a ready-made, well-diversified stock portfolio without much time investment on your part. If this is the case, then an index fund could be a good choice.
These funds mirror equity indices like the S&P 500 or the MSCI World, which means they try to reproduce the performance of a whole market or sector.
This works by buying the stocks that match this company’s market share in the sector. For example, an MSCI World Index Fund usually covers around 1500 different stocks. As there is no stock picking involved, you can buy these passive funds with fewer fees than active funds.
Investing in P2P loans
Another option you have, if you’re contemplating how to invest 1000 Euro, is P2P loans. This is a relatively new asset class, offering high-interest rates whilst having systems in place to reduce the risk to investors.
P2P Lending platforms like Lendermarket offer loans from various originators that often have loans from different sectors in their portfolio. Two prime examples of this would be consumer loans and real-estate backed loans.
If you invest your money in P2P Loans, you will have to fund your account on the P2P platform first. After that, you can manually invest into loans or use auto-invest, where you specify the criteria for how your money should be invested (e.g. countries, interest rate), and the algorithm will then take care of the allocation automatically.
You may also see a ‘buyback guarantee’ mentioned. This means the loan originator promises to buy back any outstanding loans – in some cases also paying the interest that would have been accrued. This makes P2P an attractive investment even for risk-averse investors
Conclusion
Investing 1000 Euros is the first step into starting your journey to financial freedom. If you invest regularly and find an investment strategy that suits your goals and risk tolerance, you will have the best chance to stay on that path and build long-term wealth.
What assets you invest in and how broadly you spread the funds is ultimately up to you. Everything has its pros and cons, and you might be more drawn into stocks, real estate or P2P. Just keep in mind that you can always explore new options, even while investing less than 1000 Euros at a time.