Investing can be intimidating. Should you invest? Where do you start? How do you sift through the required terms and concepts that often appear to be delivered in a foreign language? What if you lose money? And speaking of money, how much do you even need? It has to be a large sum, right?
Though everyone has their own unique financial situation, in many cases, investing is the right decision. Investing can help you increase your financial growth; save for large purchases, like homes, cars, or college tuition – and perhaps most notably, retire.
Is $500 Enough Money to Invest?
Yes, there are investment strategies and options that require the investor to be able to comfortably part with four-digit sums (or more), but that’s certainly not the only option. Today, investment opportunities are available to people with change to spare (literally), making it a feasible option for even those with minimal savings.
With that said, $500 is absolutely enough to invest, and in fact, investing $500 a year can turn in to a substantial savings down the road. Just check out our Interest Savings Calculator to see what it could turn into!
Best Ways to Invest $500 Fast
If you want to grow your $500 and access it over a short period of time, you have some options. It’s worth noting, however, that if you want to see a big increase in a short amount of time, you’re likely going to need to take big risks. Day-trading, for example, is one way to do that, but it also requires an in-depth knowledge of the market. Here are some other methods that can help you grow your money fast.
Peer-to-Peer (P2P) Lending
Peer-to-peer lending companies bypass the banks and arrange loans between an approved borrower and an investor (individual or organization). In this investment scenario, you become a lender, and your $500 will be invested through a borrowing structure. When the borrower repays the loan (typically terms are three to five years), you’ll get your money back, plus interest (average 5 percent to 7 percent).
Certificate of Deposits (CD)
If the prospective risk associated with investments is preventing you from moving forward, you may want to consider a CD. A CD is very similar to a typical savings account, but the APY is usually a bit higher, with some financial institutions, like Ally Bank, offering APYs as 2.25 percent for a no minimum, five-year CD account.
CDs usually mature within two to five years, and though the return isn’t significant, you still will be earning more than just keeping it in the bank.
Pay Down High-Interest Debt
Paying down your credit card debt may not seem like a quick investment solution, but if your interest rate is higher than what you would receive for any given short-term investment, you’ll quickly find that a $500 payment can save you a sizeable amount in interest (think hundreds of dollars). Those savings can quickly free up more money that you can go on to invest in another way.
Best Ways to Invest $500 When You Have More Time
In many situations, especially if you want to keep risk low, more time translates to more return on your investment. And, even if you only have $500 to invest, it can grow to a sizable sum, particularly if you invest more over time.
IRAs, either traditional or Roth, can take your $500 and in many cases turn it into a five- or six-figure sum over time. Some investment companies require a sizeable initial investment, but there are some that will work with $500 or less. Look into companies like TD Ameritrade if you have limited funds and want to start an IRA.
ETFs, or exchange-traded funds, offer potential investors the opportunity to create a diversified portfolio with limited cash. A favorite among young investors, ETFs typically have low expense ratios, robust investment options, liquidity, and of course, low investment costs.
What your investment will look like over the years depends on a variety of factors. But over time, you can amass a sizable savings, particularly if you increase your investment over the years or the market has a particularly good run.
DRIPs, or Dividend Reinvestment Plans, enables investors to buy stock directly from a company, as opposed to using a broker. And, as the name suggests, the dividends paid by the company are invested back into your holdings. This, in turn, empowers you to buy more stocks.
Over time, you can see significant growth in both your shares and original investment.
Best Investing Tools for Small Investing
When you’re new to investing, the tools and resources you use can make a huge difference. Here are a few that fellow investors are talking about.
Acorn is a micro-investing app that primarily works on round-up investments, meaning every time you make a purchase from a connected account, the total purchase is rounded up, and that additional change is put directly into your Acorn account and invested.
Users also have the opportunity to do multiple round-ups or set up regular contributions (e.g., $5 a week). The fee is $1 per month, or $2 per month if you want to add an IRA account.
TD Ameritrade Mobile
If you’re new to trading, like the idea of investing in ETFs, and want a solid resource without sizable fees, the TD Ameritrade app may be for you. The app provides users with the tools they need to create a robust investment portfolio, but it’s user-friendly design and thoughtful educational aspect make it easier to dive in, even if you’re not quite sure how to swim.
There is no minimum investment, but to purchasing stocks will cost $6.95 per trade.
Robinhood is fairly new to the space and is marketed at investors who are also new. As such, those who aren’t comfortable may find it to be a great place to learn and grow. This app is great for ETFs and stock trades, but those who want to invest in mutual funds won’t find that option here.
There are no commissions, minimum balance requirements, or maintenance fees, but users will still be required to pay fees mandated by FINRA and the SEC.