What To Do If You Have $500 To Invest
You may think $500 isn’t enough to get you started in investing, but the truth is that all big fortunes start small. By investing your first $500, not only will you begin to get the feel for investing, but over time that small initial sum may multiply itself several times, thanks to the power of compound interest and time.
Smaller investors have never had easier access to the market, so if you have $500 tucked away for an investment, here are a few options to get you started.
Buy an S&P 500 Index Fund
Index funds are a great way for a new investor to get access to the broad stock market. One of the most popular indexes, the S&P 500, contains some of the largest and most well-known companies in the world, from Microsoft and Apple to Facebook and Tesla. With one small investment, you can participate in the growth of America’s finest companies without having to make buy and sell decisions on individual stocks.
One of the most famous investors in the world, Warren Buffett, has instructed his own personal trustee to invest 90% of his assets in an S&P 500 index fund after his death. If the S&P 500 index is a good enough investment for the estate of one of America’s richest billionaires, it should be good enough for a small investor just starting out.
Buy Fractional Shares of Stock
Many stocks trade for more than $500 per share. However, at many brokerage firms, this is no longer an obstacle for a smaller investor. Thanks to the introduction of fractional share purchases, investors can now buy specific dollar amounts of stock, rather than having to buy individual shares. Amazon, for example, is one of the most popular stocks in America, but its share price as of Jan. 21 is north of $2,800 per share. In years past, this would prevent a small investor from buying Amazon stock, but now many brokerages will allow it.
With $500 to invest, you could now own about 0.17 shares of Amazon. Even better, with $500 you could actually build a diverse portfolio at some brokerages. For example, you could buy $100 worth of five different stocks or even $50 each of 10 different stocks. Just be sure to use a no-commission broker, otherwise, your fees will eat up a good portion of your initial investment.
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Buy a No-Load Mutual Fund
Although ETFs are booming in popularity, the formerly groundbreaking no-load fund market still has a place in many investors’ portfolios. Instead of simply buying a stock index, you can opt to invest your $500 into a no-load mutual fund that is managed by investment professionals. These fund managers will pick and choose stocks that match the investment objective of the fund you buy.
For example, depending on your investment goals and risk tolerance, you might want to own international stocks, small-cap companies or stocks that pay high dividends. Unlike an index fund, which is generally static, mutual fund managers dynamically buy and sell shares of companies based on their earnings prospects and business fundamentals. In times of market uncertainty, managers also have the freedom to become more defensive. For some investors, this is a better bet than simply owning an index.
Buy Crowdfunded Real Estate
Historically, real estate has required a high amount of capital to participate. This has all changed in recent years though, thanks to the rise of fintech companies and crowdfunding. With a small initial investment, perhaps as little as $500, you can invest in a crowdfunding pool and own a small slice of your own real estate.
A crowdfunding pool is something like a mutual fund, where investors’ funds are pooled together and used to purchase real estate. Real estate crowdfunding is riskier than investing in a real estate investment trust, but the potential returns may be higher as well. And thanks to crowdfunding, even $500 is often enough for you to get a small piece of your own real estate.
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Start an Emergency Fund
Even though you may be itching to invest your $500, many financial planners will recommend that you build an emergency fund before you start investing. It’s true that the stock market and real estate are much more profitable than savings accounts over the long run, on average. However, if you put all of your available cash into the markets and don’t have an emergency fund to back them up, you might have to sell out at an inopportune time if you encounter an unexpected expense — like a car repair or trip to the hospital. If you build your financial base first, however, then the money you earn in the future can be allocated to the markets for the long run, without fear of being forced to sell at a bad time.
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