#3: Buy a Bedrock Stock
It’s always best to start with a strong foundation for investing with diversified index funds. But if you know enough about the stock market to be dangerous, or if you already have a diversified 401k and are looking to supplement your retirement funds with something else, consider buying stocks directly in that brokerage account we just talked about.
There’s more risk in buying individual stocks, but there’s also the shot at greater rewards — and $1,000 is enough to tap into 99% of the investment options on Wall Street.
Now, the vast majority of brokerage accounts are going to charge you for every transaction … so buying a lot of stocks or trading often can eat into profits. Consider that if you pay $7.50 each transaction, buying and selling 10 stocks in a year will cost you $150 — or 15% of your entire $1,000 investment!
You’d need to pick significant winners each time just to break even … so a better plan is to pick a quality “set it and forget it” stock that you can rely on for long-term growth and a decent payout via dividends. These are most commonly large companies with stable operations, such as Coca-Cola (KO) or Johnson & Johnson (JNJ).
No matter which stock you pick, it should have a long-term flavor and a decent dividend that allows you to share in the profits of your favorite stock. For instance, Coca-Cola currently pays back 2.8% of what you invest each year in dividends alone! That means even if your stock itself goes nowhere, you’re still getting some kind of return on your investment over time.