How to Invest $500

Many finance sites, books, and blogs tend to cater to the “rich” side of the wealth distribution curve. When I finished graduate school and scored my first “J.O.B.” I wanted to invest, but didn’t have enough money to snuggle up with a brokerage firm or reach the minimum funds needed to buy many mutual funds.

If you’ve got $500 (or less), but it’s just sitting there in your bank account because investing seems too complicated like it did for me. Guess what? It’s really not!

Here’s how to invest your first $500, without the complicated crap.

(Before we start)

Sorry to pull a fast one on you, but we really can’t start talking about investments until you’ve hit a few other milestones in your financial journey. Make sure you’re finished with these objectives before you invest. We’ve found that trying to do too many things at once can really make it hard to succeed- especially financially!

• Finish School First – If you’re in college, or plan to go to college, the best way to invest for your future is to graduate with a degree that will provide income. Investment growth is cyclical in nature, so you could lose money during your (hopefully) short stint in college when you could need it. Keep that money in the bank to help ensure you finish college.
• Have a Disaster Fund First – Before you invest, it’s imperative that you have money set aside in a safe place (i.e. under the mattress saving account). Challenging things happen when you might need to access these funds to pay for an emergency. Investment funds can be hard to liquidate in a timely manner. Shoot for three to six months of expenses to stash in your disaster fund, then start investing after you’ve completed this task.
• Pay off Debt First – You might not agree with me on this one, but trust me- investing after achieving debt freedom is the way to go. You should focus all of your energy on getting out of debt first, then you can start investing for the future. Typically a home mortgage does not fit this debt description. Paying off debt (especially high interest) is the best investment your $500 can make. Learn more about debt freedom here.

(Okay, now we can start) 😉

Remember, starting small is no shabby feat, especially if you’re a Millennial. Invest $500 now, give it a few decades to grow, and watch the magic of compound interest radically increase your net worth.

Here are the top ways to invest your $500:

1. Use a robo-advisor to invest that $500

A robo-advisor is my favorite choice if you’re just starting out with a small amount of money.

Robo-advisors use algorithms to manage your money and charge a very small fee for this service. These are web-based services so you don’t need to take time off to go and visit a brick and mortar investment company. Yay technology!

First, you select your level of risk tolerance and then the robo-advisor will diversify your small account among exchange-traded funds (ETFs) accordingly.

I have used Betterment for over a year now and am very pleased with their service and performance. They have a $0 funding requirement, but you have to auto-deposit at least $100 per month to avoid a $3 monthly charge. I started out with $150 and invest an additional $150 per month. This is a very simple process and you can have the peace of mind that your funds are wisely invested.

With Betterment, you can also open an IRA, which is a great option if you’re not planning on using this money prior to retirement.

2. Start a retirement account with your company

If you are able to start a 401(k) with your employer (especially one that offers matching dollars), jump in head first.

Keep in mind that this is a long-term investment. Cashing out your investment early will (in most cases) come with large fees and penalties.

401(k)s are great because they usually don’t have a minimum contribution amount. Unfortunately, they may be lacking in fund selections depending on what’s offered through your place of work.

3. Invest that $500 in ETFs (commission free ones)

It’s dangerous for a new investor to start investing in single stocks due to the lack of diversification, plus the high commission rates to purchase stocks.

ETFs help reduce these negatives. ETFs are index funds, which track an index such as the S&P 500. I like total stock market ETFs, as they hold stocks of companies that are large and small across industries and sectors.

ETFs trade like a stock, so you can purchase a share price. With $500, you could buy a few ETF’s for even more diversification.

When just starting out, I like to look for brokers that offer commission-free ETFs with a minimum buy in of $500.

Final Comment:

Now that you’re going to become an investor, try to contribute consistently as you increase your investment knowledge.

Your $500 will definitely grow over time within your investment, but if you contribute every month, your investments will grow to a much greater amount.

For instance, if you contribute $500 and let it sit in your investment for 30 years, you will end up with $2,870 with a 6% annual interest rate.

If you were able to add an additional $100 per month to this investment, your account would reach $103,000 after that same 30 years!

The most important factors to successful investing are: starting young, starting small, and being consistent.

Have you made the jump into the world of investing? What have you had the most success with and how much did you start your investing journey with? Share in the comments below!