One can initiate investing with only $500, but many people do not want to believe this. Investing needs millions of dollars, they believe this myth.
There is a reason behind this. We always see in the news in newspapers or on TV that business magnates are investing millions of dollars in their business. As a result many of us can’t even imagine that an ordinary person can earn a lot by investing $500.
It is true that by investing $500 you cannot earn too much. But this will remove the fear of investment. Confidence will be grown in you that you can earn by investing. This confidence will make you a big businessman one day.
How to Invest $500
We can invest $500 in several ways –
- Invest $500 in Real Estate Crowdfunding
- Invest $500 in Savings Account
- Certificate of Deposit (CD)
- Blue Chip stocks & Investment Grade Bonds
- Invest $500 in a Side Hustle
- Invest $500 in 401(k)
- Exchange Traded Funds
- Reduce your debt burden
Betterment is one of the best robo-advisors through which you can easily start investing. It is very user-friendly. It was established in 2008.
You will be asked some questions when you open an account at Betterment. Through these questions they can learn about your investment goals and risk limits. They invest in different securities as per your directions.
They have some automatic features like rebalancing, tax-loss harvesting, and customized portfolios.
Betterment’s annual fee is 0.25% of your balance or $25 per year for every $10,000 investment. There is no minimum balance requirement. They support Roth, traditional, rollover and SEP IRAs.
Since Betterment has no minimum balance requirement, you can start your investment by investing $500 here.
Read More – How to Start Investing (A Guide for Beginners)
Invest $500 in Real Estate Crowdfunding
The Real Estate Crowdfunding Platform brings together the money of small investors to invest in real estate. Real Estate Crowdfunding uses investors’ money in a variety of ways. Many times this money is used to buy real estate (equity) and many times it is used for real estate debt financing. But you can invest in a mix of the two if you choose REIT. When you buy shares you will get dividends and you may also see capital appreciation over time. You have the opportunity to reinvest that dividend.
One can invest in real estate Crowdfunding with as little a $500.
Real Estate Crowdfunding platforms basically assemble money from different investors to buy real estate. This will allow you to become an owner with other investors without the worries of finding deals. You can earn money by renting that real estate and if those physical buildings are sold then you will get a share if there is profit.
Read More – What are the Investment Strategies?
Invest $500 in Savings Account
Savings Account is an interest-bearing deposit account that means you deposit money at a bank or financial institution and they will give you interest.
You have to deposit money till a certain time. The longer you keep the money, the more you can earn. And if you withdraw money before the specified time, you will get less return.
Most institutions tend to offer lower interest rates, generally less than 1% and the national average interest rate for savings is 0.05% annual percentage yield. Some banks will allow you to open an account without any minimum deposit. But most of them will ask you to keep a minimum deposit of at least $100.
Opening a Savings Account is very easy. To open an account you have to fill out a form and need identification and money.
Let’s look at an example of how much you can earn from a savings account at compound interest rates. Suppose your Initial balance is $500 and APY is 0.05%. You saved money for 30 years. Then after 30 years you will get a total of $181,860.53 and your interest income will be $1,360.53.
Read More – How to Start Investing (A Guide for Beginners)
Certificate of Deposit (CD)
Certificate of Deposit may be another option for you to invest $500. CDs offer some more interest than the savings account. If you put money here, your money will be locked up for a specific period of time. If you withdraw money earlier, there is a penalty. The amount of your interest will decrease. The longer you keep the money, the more you can earn.
If you want to keep $500 for 5 years and your APY is 0.30% then your CD worth after 5 years will be $507.56.
Blue Chip stocks & Investment Grade Bonds
Blue Chip stocks & Investment Grade Bonds are very good options for investing. Companies whose shares are well-established and high-quality are called Blue Chip stocks. Blue Chip stocks are considered to be the safest stock. Blue Chip stocks companies have a much larger market share. These companies continue to grow. That is why they can pay regular dividends. Typically blue Chip stocks yield an average return on investment of 10%.
Blue Chip stocks are a great option for those who want to invest in a risk-free way. You can invest with confidence. Experts say that if there is a recession in the Blue Chip stocks companies, then it is thought that whole economy is going to downturn.
Investment Grade Bonds is also safe for investment. If you want to mitigate your risk through investment diversification, investment grade bonds are another good option for your investment portfolio.
Investment grade bonds yield an average return on investment of 6%.
Since you want to invest a small amount then I can assume you have financial problems so you should invest in these safe sectors.
Invest $500 in a Side Hustle
If you can start your own business by investing $500 in Side Hustle, I think it will be a profitable initiative for you. Since you want to invest $500, you can conduct short trade being flipping. Buy a product from a cheap market at a lower price and sell them directly or online. Nowadays selling products online is the easiest thing to do. If you have a YouTube channel, you can post videos explaining the quality of the product.
You can use Facebook, Twitter and other social media to promote your products. You can also sell your products through eBay.
If you are a fashion designer then create new designs and sell them online. You can also make and sell useful household items that are needed at home.
Invest $500 in 401(k)
A 401(k) plan is a employer-sponsored retirement account where you can contribute a percentage of your income. Employers also provide matching funds. Each 401 (k) plan is different.
The contributions of you and the owner together are invested in stocks, bonds and other securities according to your plan. The return on investment is 3% to 8% per annum. But it depends on your asset allocation. Asset allocation should be determined based on your risk tolerance and retirement account’s maturity date. Even if you can allocate assets properly, your investment risk will be greatly reduced. So diversify your investment as much as you can. The 401 (k) plans helps to save money and account holder gets tax benefits.
Wealthfront is the top robo-advisor that offers a fairly low account minimum of $500.
Their annual advisory fee is 0.25% on your balance. They do not charge trading commissions.
This app follows “buy and hold” strategy that minimizes trading cost and maximizes long-term gains of the investors.
Wealthfront software helps lower the taxes by implementing Tax-Loss Harvesting strategy.
Those who have invested $25,000 or more will receive a line of credit. Such Account holders will get loan at 2.50-3.75% interest under line of credit facility. No credit score will be verified for this.
They diversify investment according to the investor’s instruct. They have a feature that can identify if you have extra money in your checking or cash account and reinvest that money.
Acorns is one of the micro-investment platforms that has no minimum account balance or fees for trading. With Acorns investors can build a portfolio without dealing with the traders.
Acorns offers three different subscription tiers for the investors, these are Acorns Lite – $1/month, Acorns Personal – $3/month, Acorns Family – $5/month.
Investors who have a little spare change can consider Acorns. Acorns works by rounding up investors transactions to the nearest dollar and the leftover change is deposited to the investor’s account.
Giving an example will make the matter clear. Suppose you buy a stock for $49.75. they will withdraw $50 from your account and pay $49.75 and the remaining $.25 will be credited to the Acorns investing account. When this spare reaches $5 then you can invest this amount.
Acorns is also an effective investment platform for students. Students who have a valid “edu” address can use this app for up to 4 years free of charge. . This is a great opportunity for students because if a student can start investing from the age of 18, he/she can be established as a big investor within 40 years.
Exchange Traded Funds
Exchange Traded Funds like mutual funds contain many stocks, bonds, commodities together. However, a big difference between them is that mutual funds are traded once a day, but Exchange Traded Funds are traded throughout the day.
ETFs are trader like shares so that investors can buy stock by investing less than mutual funds. If you invest in mutual funds, you have to buy a lot of bonds, stocks together, so it is a relatively expensive investment.
Brokerage houses charge relatively low fees or commissions for investing in exchange traded funds.
Since ETFs have many benefits like low cost, abundant liquidity, range of investment choices etc. So ETFs is a very good option for beginners especially those who want to invest a small amount.
Reduce your debt burden
You know that debt is a trap. Once you step into this trap, you will not be able to get out of this trap very easily. On the one hand you have to pay a large chunk of your income as interest every month for borrowing and on the other hand you want to make money by investing. It is not possible.
For example, you have $1000 credit cards debt. The interest on most credit cards is 20% -30%. So even if you invest $500 and make 10% -15% profits, your income can not surpass debt interest. So you need to repay the credit card loan as much as possible before investing.