Millennials arent known for being major financial risk-takers, as evidenced by their avoidance of credit cards and preference for cash. Theyre equally wary when it comes to investing, particularly after witnessing the perils of the stock market that have made headlines over the last few years.

For 20-somethings who are interested in playing the investment game, coming up with the money to do it is usually the hardest part. When youre putting every penny towards student loan debt or trying to make ends meet on an underwhelming entry-level salary, coming up with even a $1,000 can be tough.

Once youve gotten the cash together, the next challenge is figuring out what to do with it. Here are some of the best ways to invest $1,000 once youre ready to make the leap.

1. Open a money market account

Keeping your cash in a savings account is smarter than just sticking it under the mattress, but you wont earn a ton of interest based on the current rates. Parking that $1,000 youve been holding onto in a money market instead allows you to snag a slightly better rate while youre researching your other investment options. While you can open a money market at your local bank branch, you may be able to squeeze out a few extra pennies in interest by going with a high-yield account online .

2. Bump up retirement contributions

If youre just getting your feet wet as an investor, one of the easiest places to start is with your retirement plan. Funneling more money into your 401(k) or opening an IRA is a fairly no-fuss way to put your investment seed money to work. Adding an extra $1,000 to your annual contributions each year may not seem like much but the result is a larger nest egg down the road.

For example, say you defer $10,000 of your income into your 401(k) each year. After 25 years, those contributions would be worth right around $500,000, assuming a 5 percent rate of return. Now, if you were to bump up your deferral to $11,000, youd see the value of those contributions grow to approximately $551,000. When you consider that it breaks down to roughly $3 a day extra that youre chipping in, it adds up to a pretty decent payoff.

3. Buy fractional shares

Purchasing individual stocks can quickly eat into the money youve set aside to invest, but opting for fractional shares allows you to get the most out of every dollar. You can use your $1,000 to open an account through a platform like ShareBuilder and choose from a variety of investments, including stocks and mutual funds.

Scheduling regular deposits to your account, either on a weekly or monthly basis, gives you an opportunity to purchase additional shares without requiring a substantial amount of money. Throwing in another $25 or $50 a month shouldnt be too taxing on your budget and its a relatively no-hassle way to grow your portfolio.

4. Do your homework on mutual funds

Picking the right stocks is a challenge even when youre a seasoned investor and for the average 20-something, it may seem downright impossible. Mutual funds. on the other hand, take a lot of the guesswork out the process but youll still need to do some research to find the right one. Morningstar is one of the best places to start if youre looking for an in-depth breakdown of a funds performance. Scottrade is another good source of information.

When youre comparing different mutual funds, its important to consider other things besides the annual return. Some of things youll want to pay attention to include the level of risk youd be taking on if you decided to invest $1,000 in a particular fund, the size of the fund and the different fees that go along it. Since youre only working with a small amount of cash to start, you want to make sure that a big chunk of it isnt being eaten up by sales commissions or maintenance fees.

5. Knock out high-interest debt

If youre mired in credit card debt. throwing an extra grand at the balance can make a nice dent in what you owe. Not only that, but youll be saving yourself some money on the interest. Comparing the amount of interest youre paying to kind of returns you might expect will give you a better idea of which is the better investment.

For instance, if youve got a $5,000 balance at 18 percent and you pay $250 a month, itll take you two years to clear the debt and cost you almost $1,000 in interest. Bringing the balance down to $4,000 in one go shaves five months off the repayment time and cuts the interest down by about $400. When you consider that it would take you five years at a 7 percent annual return to make $400 on a $1,000 investment, its easy to see which one offers the most immediate results.

6. Invest in yourself

Deciding to invest $1,000 in yourself may feel a little selfish but you shouldnt be too quick to dismiss the idea. Using the money to start a side business. build a potentially profitable website, learn a new skill or take a class that could advance your career may allow you to reap some big rewards down the road. While theres still a certain degree of risk involved, you have the advantage by knowing what your goals are and what you need to do to maximize the odds of success.