Investing in Stocks or Bonds for $1,000 or Less

Have you ever had only about $1,000 to invest and wondered if you couldn’t earn a higher return on it than in a crummy savings or checking account?

Many people often assume that buying stocks, bonds or precious metals with so little money isn’t too smart. They figure that they can’t get adequate diversification or that brokerage commissions or other fees will consume too high a proportion of the investment.

Fortunately, these people are wrong. There are many ways you can invest $1,000 that will not only give you a decent profit potential but also diversification and low transaction costs.

Many mutual funds allow low minimum initial investments and don’t carry sales charges. In fact, you can put together a $1,000 portfolio--including stock and bond mutual funds, real estate and gold--that in some ways is as diversified as portfolios of giant pension funds.

Here are various elements that can be included in your diversified, low-cost $1,000 portfolio:

* Savings bonds. You can buy a Series EE savings bond from a bank for as little as $25. That will get you a bond with a $50 face value. And there is no fee or service charge.

This bond can help finance your kids’ college education. That’s because proceeds are free of federal tax if used for college tuition, provided you meet certain income and other criteria.

* Zero-coupon bonds. Here’s another way to save for your kids’ college education. Zero-coupon Treasury bonds can be bought for less than $1,000, depending on the maturity. Like savings bonds, they are sold at a discount from face value; you earn interest by getting the full face value at maturity. (But be aware that this accrued interest is taxable each year, even though you don’t receive it in cash.)

Got no kids? If you want some excitement, buy zeroes anyway. They are one of the best investments for a recession or a period of declining interest rates, because they shoot up in price when interest rates fall. You can buy zeroes through mutual funds. Benham Capital Management, (800) 472-3389, and Scudder, Stevens & Clark, (800) 225-2470, offer such funds with $1,000 minimums.

* Certificates of deposit. Several banks and savings and loans nationwide offer CDs for as little as $250 that are among the highest yielding in the nation.

John Hanson Savings of Beltsville, Md., (800) 448-5151, offered an annual effective yield of 8.47% on a six-month CD with a $1,000 minimum. That was the second-highest yield in the nation, according to 100 Highest Yields, a North Palm Beach, Fla., newsletter.

In the five-year CD category, NVR Savings Bank of McLean, Va., (800) 842-5825, led the nation with an 8.8% annual effective yield. Its minimum is only $500.

* Money market mutual funds. Most mutual funds carry minimum investment requirements of $1,000 or less. Some have minimums of $500 or less. And virtually all charge no sales fees.

* Stock and bond mutual funds. Many fund companies are raising their required minimum initial investments to spread their costs over more dollars invested.

But many no-load (no sales commission) mutual funds are still available with minimum investments of $1,000 or less. One firm, Twentieth Century Investors, (800) 345-2021, even has no minimum initial investment requirement at all. It offers several growth-stock funds that have been among the top performing equity funds in recent years.

Another respected fund family, Financial Programs, (800) 525-8085, requires only a $250 minimum initial investment.

Want to invest in foreign stocks? Financial Programs offers funds investing in both European and Asian markets.

Interested in ethical investing? Pax World, (603) 431-8022, with a $250 minimum initial investment, applies socially conscious criteria to its purchases of domestic stocks and bonds. (For example, it avoids firms in defense, tobacco and liquor.)

If stocks aren’t your thing, there also are numerous bond funds available for low minimums. They invest in everything from high-risk junk bonds to low-risk Treasury securities. Some provide shelter by investing in tax-free municipal bonds.

For a guide listing 2,900 mutual funds and their minimum investment requirements, fees and other basic information, send $5 to: Guide, Investment Company Institute, 1600 M St., N.W., Suite 600, Washington, D.C. 20036.

* Gold. You can buy gold bullion coins, including American Eagles or Canadian Maple Leafs, in sizes as small as one-tenth of an ounce. That will cost you about one-tenth the market price of an ounce of gold--plus service charges and a slight premium.

But if you really want to play the gold market, you might be better off buying a mutual fund investing in gold stocks and the metal itself. These will give you more bang for your buck, with no sales charges if you buy a no-load fund.

For $100, you can buy into two funds offered by United Services Advisers, (800) 873-8637, U.S. Gold Shares or New Prospector. For $1,000, you can invest in USAA Gold, (800) 531-8000, or Lexington Goldfund, (800) 526-0057, among others.

* Real estate. You can’t buy property or buildings that cheap. But you can buy shares in a real estate investment trust investing in office buildings, shopping centers, warehouses and other commercial property. Their shares are traded on stock exchanges.