It is a common misconception that you have to wait to have a large amount of money to start investing, but there are many options where you can invest 500 dollars or less.
The criteria I use for any investment is that I don’t want a large percentage getting eaten up by fees and it has to be able to do better than one of the high interest savings accounts which are currently getting around 1%.
This means if I am looking at ideas for how to invest 500 dollars, I don’t want to be spending more than $15 in fees (3%) and I need to make more than 1% on the investment after fees. Amy and I always keep a big focus on fees because if we invest in something that costs us 3% in fees, but can only produce 3% then it doesn’t make any sense to risk the money when I could just put it into a savings account and make more.
How to Invest $500
It is common for some of these ideas for investing 500 dollars to not appeal or apply to everyone. Just use this as a guide to find a place where you can start investing instead of a DO IT MY WAY OR ELSE kind of article. Also remember that many of these investments will let you invest much less than $500 so you can mix and match a little too
Betterment has emerged as one of the top robo-advisors and is a great way to start your investing. The way it works is that when you start your account they will give you a short series of questions. From those questions they can determine how much risk you want to take in your investing.
Once they have that information all the investing is done for you. You simply put money in and the service does the rest. Betterment is kind of like getting your own financial planner without the same amount of fees.
Fundrise allows you to invest in real estate without actually having to manage the real estate. This is done by investing in one of their real estate investment trusts (REIT). What sets them apart from other REITs is that they are open to any investor instead of just accredited investors.
What makes Fundrise even more awesome is that you can get in for exactly $500. So they are a perfect fit for our purposes of putting our 500 dollar investment in a place where it can easily grow.
3. Peer to Peer Investing
Investing in peer-to-peer loans has become a great way for people to get started in investing. The lending process is very straight forward and the interest rates are enticing. What is even better is that the default rates for loans is way down.
My recommended place for investing in P2P loans is Lending Club. I really like the interface and you can invest as little as $25 in a single loan. This means you can diversify your investing into as many as 20 loans with your 500 dollar investment.
4. Invest in an ETF
Exchange Traded Funds act like mutual funds in that each one can invest in hundreds or even thousands of stocks/bonds at one time. Where they are different is that ETFs are traded just like stocks so you can buy into one for much less than you can invest with a mutual fund.
Because they act like stocks for buying and selling purposes, you have to purchase an ETF through a brokerage. If I were starting out purchasing ETFs I would probably go with M1 Finance. M1 has 3600+ commission free ETFs for you to choose from. This means you get to buy your first set of ETFs for free, putting your entire $500 investment into actually investing.
5. Get a Guaranteed Return with a CD
Certificates of Deposit are a very basic and boring type of investment, but if you want a guaranteed return then it is the absolute safest investment you can make. The accounts are FDIC insured so you can be certain that even if the bank fails your money is safe.
Of course getting that much certainty comes with a price and that price is MUCH lower interest rates. CDs are getting slightly more interest than high interest savings accounts. The one downside to a CD is that you lock up your money for a specific period of time. With the interest rates the way they are now I probably wouldn’t do longer than a two-year CD.
You can take out a CD at any bank or Credit Union but the online CD Account rates are going to be much more competitive.
6. Dividend Paying Stocks
When companies pay out a portion of their profits to the stock holders these are called dividends. There are many companies that focus on distributing a dividend every year or even every quarter. This gives you a chance to reinvest those dividends. On top of that the value of the stocks can also rise giving you and even greater return on investment
If you are looking to get the most diversification for the lowest price, I would go with Motif Investing. They will let you invest in 30 stocks at one time with a fee of only $9.95. They will even let you purchase fractional shares so you do not have to put your money into just a couple of dividend producing stocks. Learn more of how it works in my Motif Investing review.
7. Company 401k
If you are not already maxing out your 401K match you should put your extra cash into your company offered account. This is because, if you get matching funds, you get a guaranteed return on your investment and that money that the company is matching is a part of your compensation package. So don’t pass up on the free money and put that money toward your retirement.
8. Pay Down Debt
Back when I had credit card debt this is exactly where I would have put an extra $500. Most credit cards have interest rates in the 20%-30% range. If you have this much interest working against you then no other investment is likely to make up for this level of negative interest. So if you have $1000 of credit card debt, apply your 500-dollar investment toward the balance and then surf the rest to a new 0% balance transfer card. This way you pay down the debt and get your interest down to zero while you pay off the rest.
9. Craigslist Flipping
There are some really great deals to be had on Craigslist, especially if you live in a metro area. If you can find a niche where you have experience, then flipping those items to sell either back on Craigslist or through other websites that will buy items.
You should focus on items that you really know and where there is a market for the purchase. I would spend some time watching maybe two or three categories and see what is being sold, for how much, and how quickly. The goal is to make quick turnarounds. If I were just starting out I would probably look at a $100 investment for my first one and then work my way up to investing 500.
Some popular items for Craigslist flippers are:
- Power Tools
No matter what direction you go, do your research and learn what works best for your Craigslist market.
10. Start a Business
Maybe Craigslist isn’t your game but you are great at making jewelry or custom clothing (monograming is popular in the South). Take your $500 and your talent and turn it into a small business. People all over are selling items on Etsi.com and others sell by building up a facebook group by starting with their friends and getting those friends to suggest other people join the group. Other ideas for selling stuff include Craigslist, Ebay, and local flea markets.
What is great about all of these marketplaces is that it costs you very little or nothing to start selling. So you can put your investment of 500 dollars toward actually making products instead of spending it on marketing.
BONUS – Invest in Your Knowledge
There are tons of ways to expand your knowledge and making that investment in yourself can pay off big time. Whether it is a course that makes you more marketable for a new job, allows you to move up within your current employer, or gives you the ability to start your first side gig. All of these are a great benefit to you for the long run. If you don’t have a community college that has low cost classes, look online to websites like Udemy that offer online courses in just about any subject.
How I would Invest 500 Dollars
Whenever I start thinking about how I would invest a specific amount of money I always want to put an emphasis on diversification. To that end I would invest my $500:
$150 – Betterment
$250 – Lending Club
$100 – ETF with TD Ameritrade
This grouping of investments would not only allow me to diversify in stocks (Betterment and ETF), but spread my investment to a non-stock option of peer to peer lending. Not only that, but by investing $250 in LendingClub I can be in 10 different loans. So my p2p investments are also diversified.
Investing $500 in and of itself is not going to change your life in the short term. What it can do is set you up for much better things in the future. So do your research, find an investment or investments that you are comfortable with, and make that move toward improving your future.