How I Invested $1000 In The Short-Term

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson


How Should I Invest $1000

There is a myriad of investment options and opportunities available. Some with very risky and lucrative returns while others with limited risk and modest returns. They key is to weigh risk tolerance, time and principal to determine the best strategy. The question of how do I best invest $1000 is fairly generic, but it is a good context to explain low and medium risk investment strategies. As such, focus on the principles and logic behind the strategies listed below rather than the little growth.

For simplicity, let’s adjust these variables (risk tolerance and time) to create two different strategies on how to invest.

  1. If you have low-risk tolerance, principal protection and would like your money available in 1–2 years, then I would recommend strategy A.
  2. If you have a medium tolerance for risk and time is limited to 2–5 years, I would recommend strategy B.

1. Strategy A (Low Risk, 1–2 Year Time Frame)

For this strategy, the key driving factors are: maximizing yield, protecting principal and keeping investment liquid. These factors allow you to get the highest return on investment in the shortest period of time while preventing any loss of your original investment.

Protect Principal

When dealing with a short time frame and low risk, the key is to subject the investment to little (to no) risk of losing money. Principal protection the key is to invest your money with financial institutions that provide a guarantee of this service. The guarantee is to ensure that your investment can never be decreased, only increased. This guarantee comes at the cost of the financial institution and so only large financial institutions that have a large endowment can afford to promise principal protection despite market fluctuations.

Keep Investment Liquid

For a 1–2 year time frame, it is important to have your money readily available in as close to cash form as possible. When the time comes to withdraw your money, you do not want to have to go into the market and try to sell or buy anything. Avoiding this allows you to avoid market volatility reducing your yield.

Maximize Yield

By investing in financial institutions that protect your principal while keeping your investment liquid, you are guaranteed to be under-performing the market. The old saying “High Risk. High Reward” applies to this situation. To reap the yield of the market you have to be willing to risk your investment against the market’s volatility. Since you are not doing that and instead are going through the safety of a financial institution, you will only receive a fraction of the yield.

However, it is important that you try to maximize as much yield as you can from the financial institution. You want to make sure that you are not getting undercut more than other financial institutions.

Strategy: Invest In A 12–18 Month High Yield Certificate of Deposit (CD)

With Federal Reserve raising interest rates in 2018, the increase rates will result in higher APYs for savings accounts and CDs. Banks will be competing for customers by offering high rates. Using sites like Bankrate will allow you to quickly search for which banks are offering the higher rates. Find the highest rate available and lock away your $1k for 12–18 months.

Choose 12–18 months because this is the “Goldilocks” zone. 12–18 months allows you to receive a high APY. This is also a reasonable time frame to lock up your money that most people can live with. Lastly, the Federal Reserve has announced multiple increases to interest rates. These increases should happen over the course of the 12 months. This means that by the time your CD expires you will have the ability to move your money into a high yield savings account and capitalize on the high rates, as opposed to being locked away in a long-term CD.

Strategy Visualized

Dollars ($) Percentage (%)
Total $1036
Gain $36 3.47%
Gain Per Year $24 2.4%

2. Strategy B (Medium Risk, 2–5 Year Time Frame)

For this strategy, the key driving factors are protecting principal, making only long-term value investments and loosing less than the market. These factors allow you to get the highest return on investment in a relatively period of time while minimizing risk.

Protect At Least Half of Principal

Similar to the previous strategy, you will need to invest your money with financial institutions that have principal protection. With medium risk tolerance, a portion will be invested in the stock market but it is important to keep greater than half secured.

Make Only Long-Term Value Investments

In order to minimize risk while still making a return on investments, the key will be to avoid as much market volatility as possible. One of the best ways to do this in the market is to invest in high-value companies.

High-value companies provide more stability against market volatility because of the following factors:

  • Strong Management: Availability of experienced leadership on how to capitalize through good and bad times.
  • Large Amount of Cash on HandAvailability to cash reserves for spend on sustaining or improving the business during good and bad times
  • High Credit WorthinessAbility to borrow money even during recessions to keep up with business activities)
  • Low Debt to Equity Ratio: Limited risk exposure to debt when the economy slumps and debt collectors come to cash-in
  • Earnings Growth/Net Income Growth: Ability to consistently grow the business to either earn more business or earn more for every sale

Owning a few shares of these high-value companies will allow you to reap the same or better returns of the market since they make up a good portion of most indexes. In addition, you only have a small portion of your principal invested and so downside volatility (if any) can be limited or reversed because of the fortitude, cash or management of the business.

Match The Market For Profit. Loose Less Than The Market.

In this strategy, you will be investing in the market. This means that you are subject to the volatility of the market. However, as mentioned in the previous point, you can invest intelligently so that you limit the amount of risk you take on. Doing this means that you will not gain as much as high-risk investments, however, you also stand to lose far less.

The consideration of this point is to grow the investment at the same time and rate as the stock market but also have certain countermeasures in place to lose less than the market or profit while the market loses so that the loss es can be offset a little.

This is where it is important to consider an investment like bonds. These financial instruments can (not always) be inversely tied to the stock market.

Strategy: Invest 60% in High-Yield Savings Accounts, 20% in Index Funds and 20% in High-Value Individual Stocks

60% in High-Yield Savings Accounts

With medium risk tolerance, you still want to be very conservative to protect as much of your principal as possible. As such, it is prudent to protect at least half of your overall investment. I recommend 60% because the next 10% allows for some cash reserves in-case a good opportunity arises and you need some capital to make a good stock market investment.

With Federal Reserve raising interest rates in 2018, the increase rates will result in higher APYs for savings accounts and CDs. Using sites like Bankrate will allow you to quickly search for which banks are offering the higher rates. Find the highest rate available and open an account.

By putting your money in a savings account as opposed to a CD you are free to move it around into investments (if safe and lucrative). You also are able to reap the increases to APY as the Federal Reserve increases interest rates multiple times over 2018 and possibly 2019.

20% in Index Funds (Using Dollar Cost Averaging)

The US Market is on the verge of wrapping up a 10-year growth streak. Some debate that this streak could continue for a year or two, while others feel that it is over. In either case, if you want to reap the benefits of market returns, an index is a relatively safe way of doing it.

Indexes are made up of top companies in different industry sectors into an index. Examples include S&P 500 and Dow Jones Industrial Average. Funds form on these indexes which allow a regular individual to own a piece of the index and by definition, a piece of multiple top companies. These indexes are also managed and rebalanced to ensure that the top companies remain, while weaker or unstable ones are removed. Investing in an index fund is a good way of reaping market gains but have the assurance that you have the stability of top companies to keep the index from losing more than individual stocks in the market.

20% is a reasonable (low risk) amount of your principal and if you invest it using dollar cost averaging, you can profit from market volatility. Dollar Cost Averaging is a concept made popular by Benjamin Graham (Warren Buffet’s mentor) which states that instead of investing a large amount up-front, you invest periodic amounts across time. This allows you to profit from losses and double down on capitalization of gains.

Given that we are ending a 10-year growth streak in the market, it would be foolish to go all-in on an index without knowing the what is coming next.

20% in Individualized High-Value Stocks

As mentioned earlier, high-value investments are beneficial because they provide good gains and protection for general market volatility/loss. These investments are also likely to grow over time and will never depreciate over time. These investments are also long-term, in that you can hold onto them as long as you want.

20% is an appropriate amount of invest because the price of these stocks will be usually $100–1000. As such, you need a sufficient amount of capital to buy a handful of these stocks.

As the market grows you will earn par or greater returns from these stocks.

Strategy Hypothetically Visualized

Dollars ($) Percentage (%)
Total $1315
Gain $315 31%
Gain Per Year $63 6%

*For the above analysis I assumed:

  • 2.00% APY for High-Yield Savings Account
  • S&P 500 Index Fund
  • 9% yield for S&P 500 Index Fund based on the past 5-year average
  • 9% yield for Stocks based on a modest average of 1-year performance for ALK, MSFT, PCCAR


  1. All of the above-mentioned information is a strategy NOT a recommendation
  2. The Stock Market is subject to change as are any of the returns mentioned in the strategies above
  3. Stock Indexes and Individual Stocks will not increase in a linear growth pattern. I am using dollar-cost-averaging to supplement the market volatility to illustrate compounding growth in the stock market
  4. Please consult a financial adviser before implementing any of above-mentioned strategies

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