Here’s Where to Invest $1,000 Right Now | Smart Change: Personal Finance | – Arizona Daily Sun

If you have $1,000 to invest right now, congratulations: $1,000 represents a great base upon which to start building a substantial nest egg. Indeed, you can potentially reach a $1 million portfolio in just under 23 years by investing just $1,000 each month, if you earn a 10% annualized return. So don’t underestimate the power that even that seemingly small start can have at igniting a life-changing future for you and your family.

Still, coming up with $1,000 is only part of the challenge. The other part is figuring out how and where to invest that money in a way that it can potentially provide you decent returns over time. That can be easier said than done, especially if you’re just getting started and haven’t yet adopted your own investing strategy. With that in mind, here’s where to invest $1,000 right now if you’re just getting started on your journey and want a nudge in a direction with a decent chance of long-term success.

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Buy the market, with a twist

Over time, index-style investing has been a great way to build wealth, with index funds absolutely trouncing the typically actively managed ones on a regular basis. Indeed, in the absence of a compelling alternative for your money, a broad market index fund is a great investment to consider for money you’re socking away for your long-term future.

Still, if there’s a key challenge when it comes to index investing it’s this: Many index funds are market capitalization weighted. That means the largest companies in that index have a much bigger impact on the value of the index than smaller ones do. If you look at the S&P 500, the top 10 companies (actually 11 stocks, since some companies have multiple share-classes) represent nearly 30% of the entire index by market capitalization.

As long as those companies are doing well, that fact might not bother you. If one of them happens to stumble, however, it will have a much larger impact on a typical S&P 500 index investor than that investor might expect from a portfolio of around 500 stocks.

Fortunately, there’s another easy way to own the same companies as the S&P 500, without over-concentrating in the largest ones. That way is the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP). As the name implies, the ETF buys shares of companies in the S&P 500 index, but it attempts to hold an approximately equal dollar amount of each of them.

As a result, the top 10 holdings represent only around 2.7% of the ETF. That’s much lower exposure to the largest companies out there, while still getting to invest in 500 businesses across a broad swath of industries with a single investment.

Although the fund’s 0.2% expense ratio is a bit higher than the lowest-cost index funds out there, it’s still a reasonable price to pay to get access to those companies in those balanced proportions. After all, unlike a market capitalization-based index fund, the Invesco S&P 500 Equal Weight ETF does have to occasionally rebalance itself to maintain that equal weighting. The fund does so quarterly, and that does mean it has to cover a bit more costs.

Why now?

Even if you’re convinced that ETF is worth buying, you might be asking yourself, “with the stock market down sharply since the beginning of January, why invest it now?” For that, the answer is fairly straightforward: $1,000 is an awesome amount to invest, but it alone is not likely enough to get you to a place of financial freedom. You’ll need to keep socking money away over time to build up a nest egg that gets you where you want to go.

If you view that $1,000 as your first step into the world of dollar-cost averaging, then what you’re really doing is making the first of a long string of investments as you get money available. Sometimes, you’ll buy at higher prices, and sometimes, you’ll buy at lower ones. Over time, though, the new shares you add will come on top of the ones you already held. That combination of old and new shares together, building over time, is what can ultimately add up to life changing wealth.

Within the dollar-cost averaging framework, if you buy and stocks continue to drop, then your next purchase will buy more shares. If, instead, stocks go back up after you buy, then the value of your existing holdings will be up when you put your new money in. One has the potential to be a longer-term win, while the other certainly feels good at the time you’re making the investment. Either way, it’s the act of making regular investments over time that makes the key difference.

Make today the day you decide to put your money to work for you

The key thing to remember about successful investing is that it takes time for the magic of compounding to really work for you. The longer you keep making those regular investments, the better your chances of success. So make today the day you decide to put your money to work for you, and get started on your journey to what will very likely turn out to be a more comfortable financial future.

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Chuck Saletta has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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