#2: Buy an Index Fund
So what if you don’t have the luxury of a 401k plan? Thankfully, you still have some fairly easy options to get started with your $1,000 investment.
Opening up an IRA or brokerage account is as simple as searching the web for “online stock brokers” and picking the best service for you — commonly the broker that offers the smallest fees, since you won’t be doing any kind of complex trading. You also can visit your local investment adviser if you prefer the brick-and-mortar approach, though that might cost a bit in fees.
Once your account is open, your best bet is to take that $1,000 and put it in what’s called an “index fund” — that is, an investment that faithfully follows a stock market index like the S&P 500 Index or the Nasdaq.
Not only are these well-diversified investments, since these funds are comprised of dozens or even hundreds of big-name stocks, but they are super cheap because you’re not paying for “active” management that involves high-priced analysts and expensive research.
Popular (and cheap) index funds come in all kinds of flavors, from the SPDR S&P 500 ETF (SPY) that tracks the S&P 500 to the iShares Russell 2000 ETF (IWM) that follows the Russell 2000 index of smaller companies, and even international indices if you want exotic investments.
Oh, and like a 401k contribution, there also are tax benefits to contributions depending on your income.