Can you start investing with $500? Absolutely. There are numerous opportunities available on how to invest with $500. With technology rapidly advancing, investing via various online apps is becoming more convenient. Investing software and robo-advisors are two examples of internet-generated software you can use to invest in the stock market.
These apps are available online, and you can get started with as little as $5. Your $500 is enough money to open a brokerage account with a few different firms. However, the numerous options available are likely to confuse one as to where to begin.
Let’s get started…
Before taking an initial investment risk, make sure your funds are in good shape. Set up an emergency fund for unplanned purchases, such as job loss or medical bills. The general consensus is to set aside at least 3-6 months of your monthly expenses for emergencies. Once you have that foundation, then you can start looking into ways to invest your money. Stock investing has proven to be an excellent way to grow your money and reach your financial goals.
If you’ve decided to invest your $500, it’s time to learn about some of the best investing platforms. They include:
Micro-investing is one of the most popular methods for investing as little as $5. This option is ideal for college students or anyone who wants to invest but has limited disposable income. Fortunately, the online market provides a wide range of apps from which to launch any micro-investment with $500 or less. These apps are simple to use and adaptable. The five apps include:
Betterment is an ideal software for any investor who wants to start investing but still maintain some control over their investment portfolio. Through their auto-investment feature, the company will guide you through the process of micro-investing, including portfolio rebalancing, dividend reinvestments, and auto-deposits. When applying for the company’s basic policy, there is no minimum balance required, only a monthly fee of 0.25% on investments.
Robinhood is ideal for first-time investors with limited funds to invest. The company has no trading fees and the app is simple and intuitive to use. Investors can use this platform to trade mutual funds, options, stocks, or cryptocurrencies.
The Rize app enables investors to invest and save at the same time. All you need to do is to set your goals and the company will help you auto-save and auto-invest to meet them. But, you must first understand what your saving goals are, such as saving for a home down payment or retirement, before you begin saving. Then, you’ll want the company’s recommendations to help you reach your goals.
Stash and Acorns
The Stash and Acorns platforms charge monthly fees, which can be quite high if you only have $500 to start your investment journey. Both apps have a variety of offers for investors to choose from, including automated investing, investing for kids, investing for retirement, and more.
The Stash, which has two plans (Stash Growth for $3/month and Stash+ for $9/month) allows the investor to choose from a variety of stocks and ETFs with varying themes. The Acorns app, on the other hand, has two plans (Personal for $3/month and Family for $5/month) and simplifies credit card linking by encouraging more purchasing and investing. The two apps make it possible to begin investing with as little as $5.
DIY (Do It Yourself)
If you have $500 or less to invest, you can open an account with a reputable brokerage firm, such as Fidelity or Charles Schwab. Most brokerage platforms allow you to open accounts for free and do not charge any trading fees. However, you will typically need to do your own research and choose the investments yourself.
How Can I Invest 500 Dollars for a Quick Return?
You can accumulate wealth faster than you think by investing in options that guarantee quick returns. Learning about these options allows you as an investor to grow your money despite a small start. Here are a few ideas:
1. Purchase Bitcoin
For most investors, investing in cryptocurrencies is far too risky and unstable given the volatility in the crypto industry. However, if you’re well-equipped with knowledge of how to do it and have a high risk appetite, you’ll have a better chance of making more money than you can imagine.
According to recent research, Bitcoin has the potential to grow by more than 100% per year. Imagine if you could have invested $500 in Bitcoin in 2017, you could have received $90,000 now. If you want to start investing in cryptocurrency, you can start with platforms like Coinbase, Gemini, or FTX.
Contribute to a 401(k) or an IRA
If you are able to contribute to your employer-sponsored retirement plan, such as a 401k, $500 is sufficient for yearly contributions. First, you must contact your Human Resources manager to learn how to deposit funds into your account. Typically, you will use your pre-tax income to fund your 401(k) and will need to select the investments yourself from a list of options.
Depending on your employer, you may be eligible for a company match program. A matching up policy allows employers to match up to a certain percentage of the salary invested. Employers can even assist employees in doubling their matching percentage, similar to the retirement savings plan. If your employer has a company match program, we recommend investing at least enough to meet employer match.
Create a Roth IRA
Creating a Roth individual retirement account (IRA) is one of the best ways to invest for anyone planning for retirement. The retirement plan allows you to contribute a portion of your after-tax income to your investment account.
As a result, when you retire, you’ll be able to make some tax-free withdrawals on your capital gains. However, before you open a Roth IRA investment account, there are a few things you should know. First and foremost, open an IRA investment account if you intend to leave your deposit there.
Withdrawing before reaching the retirement age of 59 1/2 is subject to fines and penalties. As a result, anyone who is impatient enough to wait for a withdrawal should avoid this option.
Purchase Commission-Free ETFs
You’re well positioned in matters of investing if you do it yourself. If you want your $500 to yield a quick return, commission-free ETFs are the way to go. Exchange traded fund (ETFs) are a type of mutual fund that allows investors to purchase multiple investments in a single transaction.
ETFs are equities that trade on stock exchanges. Purchasing ETFs allows an investor to invest more in equity accounts in order to reduce risks through diversification. With a $500 budget, purchasing a share in a well-known company such as Google is expensive.
Multiple ETFs within your price range have silvers of specific stocks, bonds, and major real estate investment features. Begin by opening an account in order to purchase ETFs for trading. ETFs, like the stock market, are valuable components of a diversified and stable portfolio. This is because such portfolios can continue to function even if one sector falls. Investors can choose from a variety of ETFs.
Similarly, index fund ETFs have the same characteristics as the S&P 500, which means you can buy multiple silver from well-known publicly traded companies for $500. However, if one ETF fails to meet the requirements of a diversified portfolio, you can invest in multiple ETFs.
Alternatively, you can hire a robo-advisor to assist you in pooling effective portfolios that will guarantee you high returns. This is the best investment option for someone who wants to diversify their investment rather than investing in individual stocks.
Utilize a Robo-Advisor Platform
The robo-advisors platform is one of several online platforms where funds can be invested in the form of a portfolio. After signing up, you will need to browse and fill out some forms, and the company will generate an investment portfolio for you. However, before you go this route, it is important to understand the level of risk associated with the investment.
Investing in a portfolio typically allows an investor to diversify more than a single stock. Unlike individual stocks, the portfolio includes exchange-traded funds (ETFs) or low-cost index funds.
The amount charged is determined by the funds in your account. Robo advisors have multiple investing options and lower charging account fees if you want a quick return on your $500 investment.
Is it Worthwhile to Invest $500 in Stocks?
Surprisingly, $500 can go a long way in the stock market. It’s just enough to start building wealth safely and forming meaningful investment habits. Investing in stocks is the best way to protect your $500 from inflation.
Your investment strategy determines the amount of long-term returns generated with fewer risks. Here’s a step-by-step plan for optimizing your investment strategy.
Establish Your Goals, Risk Tolerance, and Time Horizon
You can become an effective stock market investor if you determine your motivation, risk tolerance, and time horizons.
- Acknowledge why you want to invest in the stock market: If you choose better ways to multiply your wealth, you’re more likely to be a successful stock investor. This is through studying self-motivating stock market articles available online. Also, do a lot of research on companies that provide stocks and financial system advice.
- Understand your risk tolerance: Knowing your financial and emotional capacity to withstand a portfolio loss is prudent. Individuals’ risk tolerance is determined by their income, dependencies, financial goals, age, or level of comfort. These factors aid in assessing the overall portfolio mix when selecting a safe investment and rewarding stocks.
- Know the Time Horizons: Time horizons assist investors in determining the best time to invest. When your time horizons are shorter, the risk in the portfolio is lower, and vice versa.
Decide the Right Investment Account
Brokerage accounts allow investors to buy and sell trade bonds, stocks, mutual funds, or ETFs. A retirement account, on the other hand, has different tax classifications from the tax authorities.
They provide more tax benefits but have numerous limitations such as fines, penalties, and maximum yearly contributions. Fortunately, you can separate your funds into separate accounts.
Open an Investment Account
With technology rapidly advancing, an investor can open an investment account in a variety of ways. You can use apps like Robinhood, financial advisors, and robo-advisors like Betterment to help you deposit your money wisely.
Determine Your Stock Investing Budget
You must decide how much money to put into the stock market, preferably 20% if you follow the 50/30/20 budgeting strategy. However, in order to ensure significant returns, this approach requires effective budgeting. Investing in S&P 500 index funds will allow you to earn higher annual returns on your home down payment.
- Shift your 5-10% investment to a retirement account: Maximize your investment by maxing out your employer-sponsored 401(k) account for a guaranteed 3 percent increase.
- Invest the extra money or 5-10% in a brokerage account: After you’ve invested in your retirement account, transfer your savings to a brokerage account. You will be investing wisely if you allocate a portion of your funds to either a short-term or long-term brokerage account.
Choose Your Favorite Stocks or Funds
Clients can choose from a variety of investment options in the stock market. Here are a few examples:
- Stocks are units of shares that represent a portion of the company’s equity. They are paid from dividends paid to shareholders and reinvested to help an organization grow. Individual stocks do not give you the ability to vote on the stocks you select.
- Bonds are debts owed to a government or organization by an investor. They have fixed interest rates and low-risk portfolios.
- Funds: This is the combination of various assets with a common theme. They are designed to track the total performance of index funds. They are available in two varieties: actively managed mutual funds and passively managed ETFs.
Investing in stocks carries high risks, but also high rewards with a split of funds. However, index funds are equalizers as they offer a perfect mix of low risk with average rewards.
How Can I Invest $500 Wisely?
Finally, you can prepare to wisely invest your $500 in a variety of ways. The methods are highly speculative, and the outcome is used to predict long-term performance. Here are the best $500 investment ideas:
Purchase Savings Bonds
If you are afraid of taking risks, you can invest your $500 in savings bonds. This is one of the best ways to invest 500 dollars and save money wisely because these bonds are less risky than individual stocks.
Saving bonds are also used to finance large government programs that require large sums of money. They are less risky and thus approved as the safest investment approaches.
If you buy savings bonds, you are entitled to both the principal and the interest. Your earnings are based on the kind of bond you invest money in and if you’re patient until it matures.
Invest in Crowdfunded Real Estate
For decades, real estate investment has required a significant amount of money for startups. However, with the advancement of technology and the creation of crowdfunding, this has changed. You can use your $500 to capitalize on your crowdfunding and purchase a plot of land.
Crowdfunding is similar to mutual funds in that investors pool their resources to purchase real estate. However, unlike a traditional real estate investment trust, crowdfunding is not risk-averse.
Despite this, crowdfunding is popular among investors due to the high returns. With this type of investment, you can be sure that your $500 was well spent and you now own a piece of land in your name.
Even if real estate investing is risky, an investor should seek advice from a team of professional advisors, such as a Robo advisor. These advisors will assist you in determining the best investment portfolio to purchase. Real estate investment trusts (REITs) are another way to profit from the real estate market.
Open a High Yield Savings Account
A high-yielding savings account will earn you more money than keeping your funds in a regular checking account. Consider putting your emergency fund or extra cash in a high-yield savings account such as Marcus by Goldman Sachs. Most first-time investors should consider this investment option to wisely grow their income. This type of account has proven to be the best for investors who want to start small and value the security of accounts insured by the Federal Deposit Insurance Corporation (FDIC).
Savings accounts are one of the most popular ways to set aside money for your future. Depending on your financial goals, you can choose to set aside a certain amount or percentage of your income each month into your savings account or deposit lump sums a few times a year. While interest rates for savings accounts are not very high compared to other financial tools, you will have easy access to your money and be able to withdraw funds from them at any time without penalties (unlike retirement accounts).
Investing in Lending Club loans has proven to be a wiser investment option. However, the returns on investment for this option are determined by the loan chosen. Choosing the right loans will result in high returns and vice versa. Receiving 12 to 18 percent on peer-to-peer loans isn’t too bad if you default. A $1000 minimum is currently required to open a Lending Club account.
However, there are other platforms available that allow investors to open an account with a lower deposit. Prosper is one platform that allows investors to open accounts for as little as $25. With $500 or more, you will most likely diversify and increase your earnings.
The Bottom Line
While $500 may not seem like a lot, taking the first step to start investing your money will enable you to develop a money mindset and invest consistently. Once you get some firsthand experience, you can build a strong financial foundation and keep growing your money over time.
No matter how much you start out with, use this initial investment as a learning experience to guide you on your path towards financial independence. All it takes is this first step forward, and someday you’ll be on your way to your first $100,000 or $1,000,000.