How to make money with $1000? Best investments in crypto, stocks, and gold in 2021

How to make money with $1000? Best investments in crypto, stocks, and gold in 2021

Even if you have just $1k, it’s still possible to make money investing this amount. Remember, however, that any investment carries risk and there are no guarantees. This post is certainly not financial advice but offers an overview of $1,000 investment opportunities in 2021 in a no-nonsense way. Now let’s dive in.

Things to consider when investing

First, you should ask yourself a few questions to better understand what investment would work for you:

  • Timeframe — for how long are you willing to lock up your money?
  • Liquidity — is there a chance you’ll need to exit early and get the money back? If so, you need liquid (i.e. easier to sell) assets;
  • Risk — how much are you ready to lose?
  • Difficulty — are you willing to put in the time to learn?

There is no magic ‘money button’ and it all ties down to risk. To make any meaningful return, you need to be willing to put in your money for a relatively long period of time with little or no way of exiting early (i.e. limited or no liquidity). Most investment opportunities are not easy and you’ll need to learn new things and build up skills. And there is a chance that you’ll end up with less than what you’ve started with, possibly even with zero.

If you can’t afford to lose more than $1,000, it’s best to stick to “safe” investments like bank deposits. They won’t make much (maybe even less than inflation), but you’ll keep your money.

This post, however, will only focus on relatively risky investments as they are the only ones that can make a difference even with small investments.

How to invest $1k in crypto

Cryptocurrencies were the best-performing asset class last year, easily beating the stock market. It’s also the youngest asset class and carries the highest risks. Some people even think that crypto might go all the way to zero (probably the same type who dismissed the internet, social media, and smartphones).

Bitcoin

The easiest way to invest in crypto is by just buying and holding Bitcoin aka HODL. You hopefully know this but just in case: you can buy a fraction of a bitcoin, e.g. 0.001 BTC, don’t have to buy the whole coin.

In 2020, BTC surged from just over $7,000 in January to nearly $29,000 by the end of the year. This year, Bitcoin is already up 100%. There is no guarantee, of course, that this growth will continue this year. Yet the growing adoption by financial institutions and corporates like Tesla and PayPal suggests that crypto is here to stay and it’s not just a speculative bubble.

  • Timeframe: several months to years, holding for a shorter time doesn’t make sense given high volatility;
  • Liquidity: BTC is traded 24/7 but the price is highly volatile, there is no guarantee that you’ll be able to exit at a price higher than you’ve paid;
  • Risk: high, a daily drop of 20% would hardly shock anyone;
  • Difficulty: easy if just holding, hard if actively trading.

How? You can buy on any exchange such as Coinbase or Binance. But avoid PayPal: your BTC will be stuck on the platform, you won’t be able to withdraw your bitcoins.

Cryptocurrency portfolio

There are over 3,000 other cryptocurrencies beyond Bitcoin. Many smaller cryptos have outperformed BTC. But they carry even higher risks: hundreds of cryptocurrencies have gone straight to zero and disappeared completely.

It’s safer to invest in a portfolio of cryptocurrencies, regularly buying and selling to take profits and cut losses. Most will fluctuate like Bitcoin, some will do worse and a select few will make +100% or even +1000%, boosting the overall portfolio return.

  • Timeframe: months or years;
  • Liquidity: high, it’s traded 24/7 and you can sell some of the currencies that already appreciated while keeping the ones that you think will go up even more;
  • Risk: high, prices are volatile;
  • Difficulty: easy if you automate trading, otherwise it’s hard and requires trading skills.

How? The easiest way is to deposit money on Binance and connect your account to a trading bot like Stoic, which will automatically manage a portfolio of cryptocurrencies.

Investing $1k in stocks

The stock market is the first thing that comes to mind when talking about investments. While stocks are safer than cryptocurrencies, the returns aren’t as spectacular. The two main ways to invest in the stock market are through indices and individual stocks.

S&P 500 and other indices

A stock market index is essentially a group of stocks. The most popular indices are the S&P 500 and Dow Jones Industrial Average. An index is diversified and spreads the risks across many companies: when some are down, others could be up.

Last year, the S&P 500 returned 15%. This year through the end of March, it’s up 8%.

  • Timeframe: years, in a shorter period you won’t experience any meaningful gains;
  • Liquidity: very high, the price of the S&P 500 is more stable compared to individual stocks;
  • Risk: moderate;
  • Difficulty: easy, doesn’t require any knowledge or skills.

How? There are lots of ETFs (Exchange Traded Funds) that track the index, for example, SPY for the S&P 500 or QQQ that track the Nasdaq-100 Index.

Individual stocks

Buying a single stock is a higher risk strategy: your money is fully tied to just one company. And the share price does not only depend on how the company does right now. Expectations about its future and the overall market are equally if not more important for today’s share price.

Such concentrated bets could be very profitable. For example, last year, tech stocks like Tesla (+743%), Nvidia (+122%), and Zoom (+395%) have done great. However, some other companies suffered due to the pandemic, particularly travel and energy stocks. Furthermore, a single share of some companies costs more than $1k, just look at Warren Buffet’s Berkshire Hathaway with a single share worth about $400,000.

  • Timeframe: years;
  • Liquidity: high to moderate and the price might dip below what you’ve paid due to the overall market trend that has nothing to do with the individual company’s business;
  • Risk: moderate to high, depending on the stock and its sector;
  • Difficulty: hard, requires specialized knowledge.

How? You can research individual stock by reading financial media, participating in investment communities, or studying quarterly and annual reports that companies publish. But remember that all this information is public and doesn’t have an edge. Ideally, you should invest in individual stocks if you understand something about this company that most people don’t. We’re not talking about insider trading (that’s illegal), just something you know from working in a specific industry, studying something, or simply living or travelling.

Buying individual stocks is easy: all brokers have access to the same publicly traded stocks.

Investing in gold and other precious metals

Gold and precious metals typically do well during high uncertainty periods like the one we’re living through now. They are a hedge to a currency collapse and other doomsday scenarios. After all, these metals acted as a store of value for thousands of years.

The two main ways to invest in gold is through buying physical coins and through ETFs that track gold.

Gold coins

Buying even a single piece of gold is oddly satisfying. It is tangible, unlike crypto or stocks. But because most people think so, their fondness for the yellow metal is already reflected in the price.

Last year, Gold gained +25%. The price peaked in August when it broke $2,000 per ounce for the first time ever.

  • Timeframe: years, in a shorter period you won’t experience any meaningful gains;
  • Liquidity: moderate, there is a hefty spread between buying and selling price;
  • Risk: low, the price is unlikely to drop much;
  • Difficulty: easy.

How? You can buy gold coins via a licensed online gold broker or through your local bank (this would be more expensive).

Precious metals ETFs

An alternative to storing your gold at home is to buy a financial instrument that tracks gold. ETFs are the easiest way to get exposure to gold with the highest liquidity. However, this is not actually a hedge to a doomsday scenario because ETFs rely on a web of intermediaries, any one of which could collapse at the most inconvenient time.

  • Timeframe: years, in a shorter period you won’t experience any meaningful gains;
  • Liquidity: high, ETFs are liquid and spreads are much smaller;
  • Risk: low to moderate, depending on the metal (gold is safer, everything else is risker);
  • Difficulty: easy.

How? Just buy a precious metal ETF via any broker. Here are some popular ETFs that track the precious metals: SPDR Gold Shares GLD for gold, iShares Silver Trust SLV for silver, and Aberdeen Standard Platinum Shares ETF PPL for platinum.

Performance: crypto vs stocks vs gold

As the image below shows, cryptocurrencies have outperformed other asset classes in 2020.

Even with just a $1k investment, the gains would have been impressive, especially if entry was timed last March when the prices of all assets were down. Here’s the approximate performance for 12 months starting from 14 March 2020.

Of course, past returns do not guarantee that in future the dynamics will be the same.

To sum up

Even when investing a relatively small amount, you should consider for how long you’re willing to lock up your money, whether you might need to take it out early, and what loss you could tolerate. It’s also important to think about how much time you’re ready to dedicate to building new skills and learning.

If you’re interested in crypto, automating your crypto trading with Stoic might be the easiest way to delve into this new asset class.

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