Saving your first $1,000 can feel both exciting and nerve wracking. Many people let that money sit in cash or chase a “hot” investment, only to see inflation or bad timing quietly erode its value. Ramit Sethi, finance influencer and author of “I Will Teach You To Be Rich,” argued in a recent YouTube video that how you invest your first $1,000 matters less than the system you build around it.
Here’s how he would invest $1,000. Should you do what he said? His advice may speak for itself.
Why Letting $1K Sit in Cash Can Be a Costly Mistake
Sethi said it’s normal for people to save money and then feel uncertain about what to do with it next. A common habit is for people to leave their money in cash savings while inflation takes its bite.
“This happens all the time. Not because people are stupid, but because no one ever teaches us how to actually invest the right way at each stage,” Sethi said.
However, there are things you can do with as little as $1,000 that can help you grow your money and build security (though he also noted that your strategy may change over time and with more money).
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Step 1: Build a Small Emergency Buffer Before You Invest
Sethi emphasized stability over growth. He emphasized the importance of an emergency fund.
“Take 500 bucks, park it in a high yield savings account and that is an emergency buffer.” That is helpful when a surprise expense comes along like a car repair or a bill you didn’t see coming. It’s way better spending that than going into credit card debt, with interest well over 20%.
Step 2: Put the Rest To Work in a Roth IRA or 401(k)
With the other $500, he encouraged opening an investment account if you don’t already have one, such as a Roth IRA or a 401(k).
He suggested starting with a low-cost index fund that tracks the S&P 500, or, his favorite, a target date fund. “To choose the right target date fund, you just pick the year that you are going to retire,” he said. So someone planning to retire in 2070 will pick, say, the Vanguard 2070 or the Fidelity 2070.
Automation Matters More Than Picking the Perfect Investment
Next, like many financial experts, Sethi advised setting up an automatic transfer every month, even if it’s just $50. “This habit is worth more than almost anything you will ever do,” he urged. Then, your money grows automatically, and you don’t have to stress over market headlines.
Stop Chasing ‘Hot’ Stocks at the $1K Level
You might get a little taste of investing, see your portfolio rise and then believe you can jump on more hot stock picking, but Sethi put that idea to bed. “Stop hunting for the magic stock.”
You don’t need perfect stock — you need a system that will work for decades for you automatically, he urged.
The Real Goal With $1K: Momentum, Not Optimization
Just like you shouldn’t try to chase a magic stock, he also warned that at the $1,000 level, “don’t obsess over optimization.” Just focus on getting started. The act of starting matters more than the point where you start.
Smart investing is about building habits you make consistently over time and automating the process as much as possible to make it second nature.
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This article originally appeared on GOBankingRates.com: Here’s How Ramit Sethi Would Invest $1K — Should You Follow His Advice?
