Do you have an extra $500 but don’t know where or how to invest? Fret not, in this blog, we will discuss growing your wealth and how to invest 500 dollars along with the best investments for $500
Investing is an essential activity if you want to get ahead and have a financially stable future. It doesn’t matter whether you have a full-time job or just started college, investing is one of the best ways to earn money passively and ensure a secure and stable future. If you are new to investing, you might think it’s a rich man’s game but you would be amazed at how far even $500 can take you.
Most individuals think you must have a substantial amount of wealth to start investing. While that may be the case for many investments, there are a plethora of options for people who want to start small. In fact, if you have $500 to invest right now, you can start your investment journey.
Not only is it enough to start growing your wealth but investing even a small amount can help build good financial habits that will be beneficial in the long run. It may seem daunting to get started but it is worth it to take that first step, especially if you want to learn about investing.
Let’s dive in.
Best Way to Invest 500 Dollars in The Long-Term
First and foremost, it is important to set financial goals before you start investing. We recommend looking at long-term investment options as they are generally stable and guarantee returns.
Index ETFs
If you are unsure how to invest 500 dollars, you can invest in an Index ETF. An ETF, also known as an exchange-traded fund is a type of security that tracks an index of investments like the S&P 500. As they are tied to an index, you can earn guaranteed returns over time with minimal risk. Moreover, there are also various index ETFs that you can invest in with no additional fee.
If you make regular contributions to an index ETF within a 401(k) retirement account, your savings will grow exponentially over time and give you hefty returns. One of the best parts is that you also get tax breaks on 401k accounts and won’t have to pay any taxes on your investment until you withdraw the amount at retirement.
If you are looking for the best low-cost ETFs on the market, Vanguard offers the best options.
Roth IRA Account
Investing with your employer is one of the best ways of investing $500. Moreover, your employer sets up the Roth IRA plan on your behalf, meaning you don’t have to do any of the heavy lifting. A Roth IRA is a type of account where you can invest with post-tax money. You are liable to pay taxes on your investments but get the benefit of tax-deductible withdrawals at the time of retirement. It is an amazing system for young adults who are newly employed as it allows them to learn the basics of investing and helps in growing wealth over time.
Roth IRAs are generally offered by the employer. That being said, if you get the option of a Roth IRA or Traditional 401(k) account, you should choose the Roth IRA as it takes off the pressure of paying taxes at retirement.
It’s better to work hard now and secure a stable future for yourself.
Robo Advisor Services
If you are a young adult and are unaware of where to invest 500 dollars, you can start with a robo-advisor. A robo-advisor is an online service that uses complex algorithms to identify the best investments according to your requirements and financial condition. When you sign up with a robo-advisor, you are required to answer a series of questions about your financial history and investment goals including annual income, risk tolerance, employment history, and more.
By using that information, your robo-advisor will create a diversified investment portfolio that is tailored to you and best suited to your financial situation. A robo-advisor can be your own financial advisor if you are new to the world of investing. One of the best benefits is it chooses investments on your behalf, instead of choosing them yourself. This feature alone can save hours of research for beginners.
Some of the best robo-advisors on the market include Betterment and Wealthfront for investing $500. However, both companies charge 0.25% in annual asset management fees, which is still much more affordable than a traditional financial advisor.
If you don’t want to pay any annual management fee, you can also check out M1 which is a mix of a robo-advisor and an online broker.
Pay Off Existing Debts
Before you invest $500 in any of the options in this blog, you should consider paying off existing debts, if any. You might be wondering why we are talking about paying debts all of a sudden instead of investing. However, the truth is that paying off high-interest debts can be more beneficial than investing.
Your interest rates are likely higher than the returns you are going to get from investing. Credit card debts have skyrocketing interest rates, but that isn’t the case for all debts. For example- auto loans and student loans often have interest rates below 5%. In these cases, you can divide your efforts between paying off debts and investing simultaneously.
Where you want to invest while paying off debt is ultimately your decision. You can compare stock market returns or consult your robo-advisor for better options. For most individuals, paying off high-interest debt is an emotional burden and eliminating it is way better than potential investment returns.
Stocks
If you are a young adult with no prior knowledge of investing, building a diverse portfolio of bonds, index ETFs, and robo-advisors may be too hard for you. But there’s no need to be alarmed, you can always invest in individual stocks.
There are plenty of stocks that pay hefty dividends every quarter. However, it is crucial to note that this kind of investment is riskier than other options as your money isn’t diversified. If your stock’s price crashes, you might lose your money. That being said, if you spend time researching and finding out the best stocks, you can make a fortune off individual stocks.
Moreover, if you are wondering about the best investments for $500, you can also opt for fractional stocks. With fractional shares, you can get partial hares of a company for $1 to $5 per stock. While this may not seem much at first glance, you can buy as much as you can afford. Compound interest over a long-term investment cycle can help you earn a fortune. Not to mention, it also helps in diversifying your portfolio.
Read Also:- How Does Inflation Affect Stocks?
Invest in Real-Estate
One of the best ways to grow your wealth is to invest in income-generating real estate. Now, you may be wondering how are you supposed to buy real estate with just $500. Thanks to real estate crowdfunding sites, now it's possible.
Real estate crowdfunding sites help a group of investors to invest in commercial and residential properties. You are basically a shareholder of the property and earn quarterly or annual dividends. Moreover, you can potentially earn from appreciating price as well.
Most real estate crowdfunding sites have high minimum investments, but there are some options that let you invest in real estate with small amounts of money. Here are the top websites to check-
Fundrise: One of the best crowdfunding platforms that let you invest with as little as $10 and only charges 1% in annual management fee.
Arrived Homes: A relatively new crowdfunding website that lets investors invest in residential real estate for as little as $100.
Groundfloor: It is a debt-based investment platform that allows you to fund real estate development loans for only $10.
HappyNest: Another new crowdfunding platform that lets you invest in properties with only $10.
How To Invest $500 for Quick Returns?
If you don’t have the patience for long-term investments or require money urgently, here are the best investments for $500 with quick returns.
CopyTrading
This option is suitable for advanced investors. You can make money by essentially copying investors who are already successful. But it is more complex than it seems. You will have to study investor’s strategies before you start investing your own money. Moreover, it is important to ensure that their skills align with your current situation as their success is directly correlated with the amount of money you can make.
Copy Trading gained popularity with the rise of social trading platforms like Copy Trader and eToro. It is an amazing option for investors with prior experience in trading. With just $500, you can copy up to two or three investors at a time.
Invest in Cryptocurrency
If you are familiar with the investment market, you know how big cryptocurrency is. Blockchain technology has revolutionised how we interact with money and tons of people are already making a decent living by investing in cryptocurrency.
It is crucial to have prior experience in investing as cryptocurrencies are highly volatile and complex. However, there are various online courses available that can teach you all about how to trade cryptocurrencies and build a portfolio. The speculative nature of cryptocurrencies means that you can start with as little as $500 and get hefty returns.
It goes without saying that high returns also mean high risk, so you don’t dive in unless you are absolutely sure. You should only invest the amount that you are prepared to lose.
Similar to Cryptocurrencies, NFTs are also gaining traction in the gaming industry. Blockchain-based NFT games are also a great way to earn some extra money if you are interested in gaming.
Penny Stocks
If you are looking for the best way to invest 500 dollars, look no further than penny stocks. But be cautious as penny stocks are highly speculative. A penny stock is essentially a share of a company worth less than $5 per share. These companies are generally start-ups and are not very popular in the market. They trade outside the major exchanges.
Penny stocks are usually associated with the pump-and-dump scheme. If the price of the stock you bought goes up, you sell your shares for a profit. When you buy a penny stock, other investors will get to know about your purchase and may also buy the same stock.
One of the best benefits of investing in penny stocks is you can invest a small amount of money and get significant returns, sometimes even ten or twenty times your initial investment. However, this also means that they are incredibly risky and you could lose your investment. Make sure to do proper research before diving into penny stocks.
Moreover, penny stocks are quick to turn over. This means if you get lucky and hit the jackpot with a single stock, the money will be locked up for only one round of trading before you can take it out.
Options Trading
It is one of the least popular ways to invest a small amount of money but also the most profitable if you get it right.
An option is an agreement that gives you the right but not the obligation to buy or sell an asset at a specified price until a particular date. You can purchase options directly from the market or through an options broker. You will have to buy a premium fee for buying options but if your predictions are right, you stand to get much higher returns.
Options trading is straightforward to test if you can predict how the market will move. If you buy an option and your prediction doesn’t work out, you only lose $50 to $100 at most. However, it is not suitable for beginner investors as the market is complex and volatile.
Read Also:- Everything You Need to Know About Securitization
How to Invest 500 Dollars? Step-by-Step Guide
If you are new to the investing world, you can often get overwhelmed by the plethora of complex investment options available in the market. Follow this step-by-step guide to help you get started on your investment journey.
Set Clear Goals
First and foremost, it is crucial to set your investment goals, be it long-term or short-term. If you have no prior experience, we suggest setting realistic long-term goals. You should be as specific as possible when setting goals like the amount of money you want to earn and how much time you can give to your investments. This will help you in determining how much money you can commit and what kind of profits you are looking for.
Common long-term goals also take into account how your life can change. For example-
- Retirement Funding
- Financial Independence
- Buying a New Home
- Getting Married
- Starting a Business
- Travelling
Whatever your goal is, it is important to remember it and plan your investments accordingly for success.
Decide How Much to Invest
This is one of the most crucial steps in the process. You have to decide how much money you can allocate for your investments regularly and stick with it for a while. If you can’t decide on a specific amount, you should start small. It is important to not get overly excited and take your time to slowly build your portfolio.
Approaching this practice with a clear mind will help you stay committed to building your wealth over time.
Open an Investment Account
Regardless of the investments you choose, you must have an account with the brokerage that you are investing with. This is important as you can’t buy stocks without an account. Even crypto trading requires an account on an exchange. Your investment account is the starting point of all your investments, so take your time and choose wisely. There are many online social trading platforms available that will help you open an investment account-
- eToro
- Interactive Brokers
- eOptions
- Coinbase
Learn as You Invest
Once you have opened your investment account, it is important to start learning about investing. There are plenty of opportunities to build a fortune, but you can only take advantage of them if you have proper knowledge about investing and finance. One of the best ways to stay updated with all things investing is self-education. It will keep your mind sharp and make you prepared for success.
Final Words
A $500 investment may not seem like much but it can go miles over time. The most important thing to do is not rush into anything, instead, build the habit of consistent investing. Don’t invest your $500 if you think you might need it soon. One of the best ways to earn from your investments is giving it time to grow. With enough patience, your $500 investment will grow and you can eventually improve your portfolio and invest in other instruments as your money grows.
By now you must have learned about the various investments that you can make with $500, the only thing left to do is take action. Remember, a consistent profitable strategy will give you better chances at long-term success. Avoid rushing your investments.
Read Also:- A Comprehensive Guide on Options Contracts
Frequently Asked Questions(FAQs)
Ans. While it is not a good strategy to rush your investments, there are numerous ways to get quick returns. If you are in urgent need of money, you can opt for penny stocks. They are highly volatile but can offer you up to ten or twenty times your initial investment. However, because of their speculative nature, they are considered incredibly risky. You can also explore other options like Copy Trading, Cryptocurrencies, and options trading.
Ans. An emergency fund is typically money set aside to cover unexpected expenses if you encounter one. Financial experts suggest having at least three to six months of your living expenses as an emergency fund. This way if you face unexpected expenses like medical emergencies or loss of income, you will have a safety net to fall back on. If you decide to build an emergency fund, make sure to keep it in a safe instrument like savings or money market accounts.
You can also build your emergency fund and invest at the same time by dividing your money.
Ans. Before you start your investment journey, there are certain things to take care of. First and foremost, get your personal finances in order like creating an emergency fund with at least three to six months of your living expenses and paying off high-interest debts like credit cards.
Besides that, you should also determine your risk tolerance(conservative, moderate, or aggressive) and time horizon(how long will you hold investments before selling). Lastly, you should decide on your long-term and short-term goals that will drive your investment choices.
