Ways to invest $1,000 - Second Approach

Investing in Stocks

If you feel you have a good understanding of the stock market and want to pick your own stocks, there are a couple ways to go about doing it. You can either invest in them by buying DSP's or by opening a low-cost online investing account.

A Direct Stock Plan (DSP) allows you to invest in a stock with very little commission. They're good for people who have little money but I don't recommend them for someone who doesn't plan to own the stock for at least a year. The reason is because you have to fill out the paperwork for each stock you buy and they are slightly less liquid than a regular stock is.

The alternative to a DSP is finding a low-cost online investing account. Finding a low cost online broker is very important when you don't have a lot of money to invest because higher commissions can eat away at your savings. Some online brokers that allow you to start with $1000 or less and have cheap commissions are Scottrade, Ameritrade, and Sharebuilder.

Once you've found the broker and have filled out the necessary forms, you'll be able to invest online. But before you make that first trade, you have to research some stocks and decide which one you want to buy. I personally recommend you invest in companies you know about rather than some strange company that you had never heard of before. Once you've picked the stock, just enter the trade and it should be promptly executed.

Whether you decide to invest in a mutual fund or in individual stocks, the odds are in your favor that, over a period of time, you will earn a positive return greater than the traditional savings account or CD.