Smart Ways To Invest $2,000

If you're looking to invest $2000, there are a few options to consider.

Firstly, you should assess your goals, time horizon, circumstances, and risk tolerance. If you need the money within five years, it's generally recommended to avoid investing heavily in stocks, as their value can fluctuate. Instead, you may want to consider a savings account or a cash equivalent that accrues interest, such as a money market account or a high-yield savings account.

If you don't need the money in the short term, you could consider investing in stocks, either by picking individual stocks or through a stock fund. You could also look at investing in bonds, which are typically seen as less risky than stocks, or in real estate investment trusts (REITs).

Additionally, you could consider tax-advantaged accounts, such as a 401(k) or an IRA, which offer tax breaks on your investments.

Remember to do your own research and consult a financial professional before making any investment decisions.

High-yield savings accounts

• High-yield savings accounts offer significantly higher interest rates compared to traditional savings accounts, with some accounts offering APYs of 5% or more. This means your savings will grow faster.
• These accounts are ideal for short-term financial goals, emergency funds, or saving for a large purchase.
• Your money is easily accessible, as most high-yield savings accounts provide ATM cards and online/mobile banking services. However, there may be a limit of six withdrawals per month.
• Your deposits are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), so your funds are protected up to $250,000 per depositor.
• There are usually no monthly fees or minimum balance requirements, making it a low-risk investment option.
• Interest rates on these accounts can fluctuate based on market conditions and changes in the economy, so keep an eye on the APY offered by your financial institution.
• Online banks tend to offer higher interest rates and lower fees than traditional banks due to their lower overhead costs.
• When choosing a high-yield savings account, consider factors such as APY, fees, minimum deposit and balance requirements, compounding frequency, and customer service options.
• Some popular high-yield savings accounts include UFB Direct, Laurel Road, Varo, LendingClub, and TAB Bank.

Money market accounts

Some money market accounts offer check-writing and debit card privileges. For example, the money market accounts offered by Discover Bank, Ally Bank, and Sallie Mae Bank all come with check-writing privileges, while Quontic Bank and Ally Bank offer a debit card.

The best money market accounts have strong rates and low fees to help you grow your bank balance. For example, as of July 2024, the Vio Bank Cornerstone Money Market Account had an APY of 5.30%, while the Sallie Mae Money Market Account had an APY of 4.65%.

Short-term corporate bond funds

When choosing a short-term corporate bond fund to invest in, it is important to prioritise those with low expense ratios, also known as fees. Fees reduce your returns, so it is best to opt for low-cost funds, which naturally have lower returns. Here are some of the best short-term corporate bond funds to consider:

• PGIM Short-Term Corporate Bond
• Vanguard Short-Term Corporate Bond ETF
• SPDR Portfolio Short Term Corporate Bond ETF
• IShares 1-5 Year Investment Grade Corporate Bond ETF
• Schwab 1-5 Year Corporate Bond ETF

Exchange-traded funds (ETFs)

ETFs are a great way to minimise risk by diversifying your investments. They are also flexible, allowing you to buy into a variety of sectors or industries, such as energy ETFs or inverse investing.

There are two main types of ETFs: passive and active. Passive ETFs aim to replicate the performance of a broader index, such as the S&P 500. Active ETFs, on the other hand, are managed by portfolio managers who actively buy and sell securities to try to outperform a benchmark. These tend to have higher fees.

When choosing an ETF, it is important to consider the fund's goals and strategy, underlying assets, expense ratio, liquidity, performance history, and how it fits within your overall portfolio.

• SPDR S&P 500 (SPY): The oldest ETF that tracks the S&P 500 Index.
• IShares Russell 2000 (IWM): Tracks the Russell 2000 small-cap index.
• Invesco QQQ (QQQ) ("cubes"): Tracks the Nasdaq 100 Index, typically containing technology stocks.
• SPDR Dow Jones Industrial Average (DIA) ("diamonds"): Represents the 30 stocks of the Dow Jones Industrial Average.
• Sector ETFs: Track individual industries and sectors such as oil, energy, financial services, real estate investment trusts, and biotechnology.
• Commodity ETFs: Represent commodity markets, including gold, silver, crude oil, and natural gas.
• Country ETFs: Track the primary stock indexes in foreign countries but are traded in the U.S. and denominated in U.S. dollars.

ETFs are a great option for those looking to invest $2,000 due to their flexibility, liquidity, and lower fees. However, it is important to do your research and choose ETFs that align with your investment goals and risk tolerance.

Real estate investment trusts (REITs)

There are different types of REITs, providing investors with access to residential, commercial, and specialty real estate. Residential REITs, for example, own and operate multi-family rental apartment buildings, while commercial REITs may focus on retail spaces, shopping centres, hotels, or healthcare facilities. Some REITs also invest in mortgages and mortgage-backed securities instead of physical properties.

One of the biggest advantages of investing in REITs is their high-yield dividends. By law, REITs are required to distribute at least 90% of their taxable income to shareholders in the form of dividends. This makes them an attractive option for investors seeking a steady stream of income. REITs also offer portfolio diversification, especially for those who cannot afford to purchase commercial real estate directly. They are highly liquid, allowing investors to buy and sell with ease, and they have historically been one of the best-performing asset classes.

When considering investing in REITs, it is important to assess the underlying real estate and the financial health of the REIT. Look for REITs with strong tenants, good profits, solid balance sheets, and minimal debt. Additionally, consider the specific sector and property type that the REIT focuses on, as different types of REITs carry different levels of risk. For example, hotel REITs may perform poorly during economic downturns, while healthcare REITs may be more stable due to longer lease structures.

In terms of how to invest in REITs, you can purchase shares of individual REITs that are listed on major stock exchanges, or you can invest in REIT mutual funds or exchange-traded funds (ETFs) that provide instant diversification. Before investing, make sure you understand the fees and expenses associated with the investment.

Overall, REITs are a compelling option for those looking to add real estate exposure to their portfolio and benefit from regular dividend payments. However, it is important to remember that, like any investment, there is always a risk of loss, and REITs are sensitive to interest rate changes and economic conditions.

Frequently asked questions