Fun question!
Option 1: Bet it all on your favorite team this weekend, or your local bookmaker's "lock of the week". Or reduce your risk slightly by spreading it over 2, 3, or even 4 games. Of course, if you do this each week, eventually you will lose all $1000. But it will be darn fun and you won't have to cut your own fingernails for a while.
Option 2: Randomly pick some stocks or stock funds based on hunches and pieces of info you gleen from message boards, Money magazine's November issue, or your Uncle Harry. Or throw some darts at the sunday stock section of your newspaper. Any of these approaches will serve you equally well, a fact that has been statistically proven time and time again. In fact, darts do better empirically because they don't charge fees. The Wall Street Journal has a "dart fund" that they track every week against readers and experts picks - check it out for yourself. In any case, you will do okay over time with any of these approches, although you will also be charged fees if you go with mutual funds, especially non-index funds. Never pay for a fund with an expense ratio above 0.40 (0.25 or lower is best) and don't ever buy loaded funds.
Finally, the best option:
Option 3: Note that this is also the most boring option, but it will yield the highest return over the long term with the lowest standard deviation (risk):
- Open a Roth IRA with Vanguard, Fidelity, TIAA-CREF, or your favorite LOW-FEE brokerage. Low-fee matters. I prefer Vanguard because they are the king of low-fee index funds. However, a stock brokerage is fine too if you want to go with ETFs instead of index funds.
- In this Roth IRA allocate your $1000 using this extremely complex formula, where X is your age:
- invest X% in the Vanguard Total Bond Market Index Fund (or your brokerage's best total bond index fund or ETF - but not one that includes tax-free bonds - your Roth is already tax-free and tax free bonds have lower returns)
- Invest (100-X)% in the Vanguard Total Stock Market Index Fund (or your brokerages closest fund or ETF - NOT an S&P 500 index fund, not a large growth index fund - a TOTAL MARKET index fund.
- Or if you are really just feeling crazy and want to do something zany with your money... here's an even more complex formula that is even safer (lower risk) but more rewarding (higher return) over the long term. X is still = your age:
- Invest [B]X% in the Vanguard Total Bond Market Index Fund
- Invest [B](2/3)(100-X)% in the Vanguard Total Stock Market Index Fund
- Invest [B](1/3)(100-X)% in the Vanguard Total International Stock Index
- Most important: Max out your Roth every year if you possibly can!! $3000 is currently the maximum per person per year. The earlier you start, the better off you will be. Understand that anything you ever make in a Roth IRA will never be taxed. Period!! In the industry, we call that "free money" because that's what it is. It is free money from uncle sam. Over your lifetime, your $1000 will double every 7-10 years... meaning it will be worth $32,000 in 50 years (worst case - probably much more but I like to estimate conservatively). In a Roth IRA - your tax on that $31,000 income will be exactly $0. You can't beat that!
- Every 2 years, re-adjust your Roth holdings back to the allocation provided in the above formulas above. They will need re-adjusting because (1) you will be two years older so X = X + 2 and (2) one allocation (either the bonds or stocks) will have outperformed the other and thus re-allocation is necessary. This re-allocation is your forced, easy way of buying low and selling high, without having to try to time the market yourself, which nobody can do (no matter what they claim).
Lastly, I would actually first take $20 out of the $1000 and buy the book
The Four Pillars of Investing by William Bernstein. Some day you may want to read other investment books, but this one is best to start out with for so many reasons - the main ones being that they put all investments and investment guidance into the correct context, and when you have finished the book, you will understand everything you see and hear about investing, and more importantly, you will have an easy plan for yourself to follow for the rest of your life - with no need for annual stress and decision making.
After all that, go get drunk - you're in college.