If i have $1000, what is the best way to invest that amount of money beside saving it in the bank?

For a beginning investor, mutual funds are a good way to begin. They allow you to purchase a large holding of a variety of stocks with a small amount of capital. There are various types and flavors of mutual funds. Some you buy like stocks from a broker and others you buy directly from the mutual fund company. Not all will allow you to begin with only $1000, but there are many that will. Among those that will are American Funds. These are a family of funds with a front end load--a sales charge of 5%. Many funds do not have a front end load, but they normally require a larger initial investment--$2,000 or even more. The front end load is offset by generally lower expenses than funds with no front end load. In other words you make up the difference over time. American Funds does have a good long term track record for many of their funds and the initial investment is only $500 with subsequent investments of $50. One of their better funds is Washington Mutual Investors Fund with a life of fund annual return of 12.6%. $10,000 invested 20 years ago would now be worth $102,000. The fund invests in large cap U S companies. Its annual expense ratio is 0.57% about half the average large cap no load fund. It pays an annual dividend of about 1.8%.

The first link below is a list of all of their funds and the performance of each fund.

My favorite type of fund is the closed end fund and ETF index fund. They are purchase like stocks from a broker. But in order to buy them you have to have a brokerage account. Scottrade or TDAmeritrade are two internet brokers where you can establish accounts. But one problem for a small beginning investor is the brokerage commission you must pay. Scottrade charges $7.00 a trade and Ameritrade $10.00. On a $1000 tranaction that amounts to about 1%, but it is less than the 5% that American Funds will charge you. Making monthly additions to your holdings is out of the question with these types of funds because of the size of the transaction cost. You would have to do it on an annual basis after saving up another $1000 or so.

Index funds are set up to track a stock index such as the S&P 500 or the Russel 2000 or about 200 other indexes. Their big advantage is that they have low expense ratios, about 0.5% or lower and that they do not churn their holdings so you will not have to pay year end capital gains on realized gains. That is a common problem with mutual funds in general.

Closed end fund have a big advantage in that many sell at a discount to the value of their holdings, as much as 15%, so it is like buying stocks on sale. One with a very good long term track record is GAM. 15% annual return over the last 10 years and 16% annual return over the life of the fund. Currently sells at an 8% discount. Invests in large cap stocks. If you were to buy $1000 worth of GAM even with the broker commission, you are still buying stocks at a 7% discount. What a deal. It is not the only one.

There are a couple of ideas for you. Check them out.