If you’ve got $2,000 saved up, you can buy a variety of happiness-inducing items or experiences. You could spend it on a fancy computer, a purebred puppy or a flight to some sunny destination.
But as tempting as those choices sound, I’d consider doing the more “responsible thing” and using that money to start a long-term investment portfolio.
Who am I to tell you? Well, I’m a finance writer and I’ve learned about responsible investing from personal finance experts. Managing money responsibly is a necessity, not an option, for freelancers like me. It also means I can relate to investing newbies.
I know, I know: Yawn! Investing $2,000 in stocks isn’t as fun as flying to the Caribbean — but hear me out: If you start investing early, you could set up a powerful habit that will save your future self a lot of financial headaches.
The best strategy for you will be highly dependent on your personal situation. Let’s look at a few hypothetical scenarios to help you start thinking about how best to balance growth and risk.
Scenario 1: Jamal, 28, customer service rep, starting out with just $2,000
Imagine someone like Jamal: single with a full-time job as a customer service rep. His income is secure and he can cover his rent every month — but he doesn’t have a rainy day fund. He’s wondering if it’s safe to jump into the stock market, right away, with his $2,000.
Investing options for $2K and no emergency fund
In Jamal’s situation, I’d have trouble sleeping at night if the full $2,000 was in the market and I didn’t have an emergency fund, something financial experts prioritize.
So, I’d look into a high-interest savings account and deposit $1,500 into the option with the best rate. This way, I’m prepared for unexpected expenses, such as car repairs or a job loss. Good options include Simplii Financial high interest savings account or EQ Bank Personal Account — both online banks with high earning rates on savings accounts.
Then I’d consider dipping my toes into investing with the remaining $500, moving it into a dividend ETF portfolio on a reputable beginner-friendly platform, such as CIBC Investor’s Edge.
As a newbie investor, stock picking, day trading or investing in alternative assets like Bitcoin are simply not worth the risk, so Jamal should stick to diversified, stable investments like ETFs and blue-chip stocks. While these stable investments reduces high appreciation potential (as they’re known for stable, reliable returns), it gives Jamal (and, I’ll admit: me) a strong foundation with a portfolio built on tried-and-true long-term growth strategies.
Scenario 2: Maya, 35, a mid-level software engineer with a stable income, money in an emergency fund and zero debt
Maya has worked at the same company for seven years, is married and child-free. She’s paid off her student loans and has a stable income with a bit of a buffer in an emergency fund.
Investing options for $2K with no debt
In Maya’s relatively stable position, with an emergency fund squared away, I’d feel more comfortable about putting all $2,000 to work in stock market investments.
First, I’d consider opening a self-directed brokerage account and a Tax-Free Savings Account (TFSA) — some fintechs and banks have both. That way, I’d have the flexibility and easy access to the liquidity of the non-registered account. I’d also build necessary retirement savings in the tax-advantaged account.
I’d put most of the money into dividend ETFs like those that track the S&P 500 or TSX Composite Index. I’d save a portion, say 20%, for strong mega-cap stocks — companies with a market capitalization of over $200 billion — held in both the non-registered brokerage account and the TFSA.
I wouldn’t risk investing in any stock with a market valuation of under $2 billion, or in speculative assets. Sure, I might miss out on higher returns, but I’d also avoid excessive volatility.
This measured mix of ETFs and a touch of stock-picking balances growth with peace of mind.
Scenario 3: Kristen, 21, college student and part-time barista, just learning about investing
Between full-time studies and part-time shifts at a local coffee shop, Kristen is busy. She’s single and shares an apartment with three roomies. She’s managed to save up $2,000 that she wants to invest.
Investing options for $2K when you’re still in university
Like Jamal, Kristen could do with more of a cushion for emergencies. In her situation, I’d deposit $750 in a CDIC-insured high-interest savings account (HISA) to have a bit of a buffer when something unexpected comes up.
With that safety net in place, I’d consider investing the remaining $1,250 in diversified ETFs within a TFSA to benefit from tax-free growth now, and the potential of long-term investment potential.
I’d either set up my TFSA with a robo-advisor or in a self-directed brokerage account — depending on how actively I want to learn about investing and managing my own portfolio.
As tempting as it might be to see what meme stocks and altcoins are trending on TikTok and Reddit, I’d do my best to avoid that kind of influence, and the risk of gambling away money I can’t afford to lose.
This kind of strategy may not offer the highest growth, but it’s a step toward developing solid financial habits and is an opportunity to take advantage of the tax benefits a TFSA offers, plus the power of long-term investments.
Scenario 4: Terry, 30, digital marketer with a financial cushion who’s keen to start investing safely
Terry is doing well, and making smart choices with his personal finances. He has already set up an emergency fund and has some retirement savings. Now he wants to start trading in the market, but doesn’t want to get wrecked.
Investing options for $2K when you’re in your 30s
Terry has a solid financial cushion, and a sensible awareness of risk, as such, if I were in his shoes, I’d invest the entire $2,000 in an individual online brokerage account with plenty of trading and research tools. (One great option is CIBC Investor’s Edge, where you can learn to trade and grow your investments using their Investments 101 educational tools.)
Using this online brokeage, I’d put $1,000 in a reliable S&P/TSX Composite index fund for a safer long-term strategy before taking a calculated risk and investing $1,000 either in one or two stocks or maybe Bitcoin. A good brokerage for this strategy is Wealthsimple. Not only does Wealthsimple offer a low-cost online trading account you can also buy, sell and earn crypto through Wealthsimple Crypto. Remember, though, penny stocks, options and altcoins are still far too risky. If you really want to add higher-risk/bigger-reward options to your portfolio, consider getting a membership to The Motley Fool— a stock trading educational platform that offers members expert investment guidance.
As I develop my investment strategy, I’d experiment safely with simulated trading or educational tools — to play around with trading without using real money. I’d avoid investing based on free advice, headlines or whatever someone on Reddit says.
While some of my actively managed investments might underperform relative to the market, they’re balanced by the ETF position, which provides a more reliable growth trajectory.
In the meantime, I will learn more about trading and the best approach for me given my risk tolerance.
No amount is too small to invest
There’s an investment strategy for everyone, whether you have $2,000 or $2 million. And the strategies I’d consider might work for one person while not for another.
That’s why it never hurts to consult a professional to talk through your own unique situation. A qualified financial advisor can help you design a strategy that works best for you.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.