Editor’s note: This article was first published in August 2010. Its figures are from Spain at that time, including fixed-term deposits paying 3% to 4.17% and costs of 2.5% to 3% to buy and sell shares. Deposit rates and brokerage fees are very different today.
A question that comes up a lot online is what we could invest €1,000 (or dollars) in to get a return. Let’s try to clear up the doubts and answer the question. First of all, though, I have to say that while €1,000 is a lot of money for some families to save, in the world of investing it may fall a little short.
I think the best way to answer this question is with examples, so we are going to invest that €1,000 in several investment vehicles so that you can draw your own conclusions.
Fixed-term deposits
Let’s say we get a deposit with a fairly good return. Rates of 3%, 3.5%, 4% and even 4.17% are common for this kind of investment. Well, suppose we manage to find a deposit paying a nominal 5% a year.
At the end of the 12-month deposit, our gain would be €50. This is a safe investment, but as you can see, €50 is not going to let us quit our jobs.
Investment funds
Putting €1,000 into an investment fund means placing that money in someone else’s hands, and in this case the bank will probably advise us on which fund to choose. It is becoming increasingly clear that banks earn their clients less in a fund than an independent investor would. Let’s say the investment is a good one and you get some return from the fund. Then come the fees the bank has charged you, so even if the investment goes brilliantly, the profit would probably be less than €50, and you have taken on a risk you didn’t have with the fixed-term deposit.
Investing in the stock market
Here there are two different opinions. One says that stock market investments start to pay off from €3,000, because with €1,000 we would have to keep the money invested for the long term, meaning 3 or 4 years; otherwise the fees would eat it up.
The other says it is a very good option if you invest in a stock that enters a bull market, since fees and costs would take between 2.5% and 3%. If we get a 10% return over a year, that would be €100, which after costs, fees and taxes would come down to about €70. In that scenario, of course, we have achieved a 10% return. If we had got 3%, we would have lost some money, when fixed-term deposits pay us 4%.
My personal advice on investing €1,000 in the stock market is that I think it is a good option, because it is a way into the world of investing while handling little capital. It is better to start on the stock market with €1,000 than with €10,000.
If in the end you don’t get the return you hoped for and only get €850 back, let’s say the learning process cost you €150.
Mutual funds and combined deposits
With these investment vehicles (a combined deposit is a bank product that pairs a deposit with a fund), it is exactly the same as with investment funds: you leave your money in someone else’s hands, they take a fee, and no return is guaranteed.
So what should you invest in?
Well, if we rule out the stock market, one option is clearly to put that money in a fixed-term deposit, think of it as savings, and have 40 or 50 euros more the following year. Meanwhile, we keep saving more capital so that we can make bigger investments. When we talk about finding ways to make money work for you, we first need a “good workforce”, in other words, a reasonable amount of capital.
Another option would be to invest it in a business opportunity, and by business opportunity I don’t mean starting a business, because with the capital we have to invest we wouldn’t get very far. But you can buy products that you have already sold to someone else in advance. For example, imagine buying a second-hand motorcycle for €250 and being able to sell it to someone else for €350. That’s €100 profit.
It could be clothing or food products. Multi-level marketing doesn’t appeal to me, but some people would see it as another reasonable option.
To sum up, with €1,000 we don’t have much room to get high returns, but putting it into a quick buy-and-resell deal or into a safe investment product while we save up more capital are, I think, the two best options, without forgetting the stock market if, over time, that becomes your goal.
Featured image: kschneider2991, CC0 1.0, via Wikimedia Commons.
