How to Invest $500 for a Beginner - Top 10 Ideas
Whether you have a full-time job, a part-time job, or are still in school and need some extra cash, investing is essential if you want to be financially independent in the future. Most people don't invest because they can't afford to or don't know where to start.
But the matter is, investing isn't reserved for the rich or high-income earners anymore! If you have $500 to invest right now, you can, and you should. There are plenty of options for people who want to start small and don't think they can afford the minimums on more significant investments like stocks or bonds.
This blog post will help you invest $500 for beginners by listing the top 10 options.
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Is $500 Enough to Start Investing?
When people think of investing, their mind immediately shifts to practices like day trading, which can cost tens of thousands of dollars to get started. These days, the only thing you really need to start investing is money, an Internet connection, and some time on your hands. $500 is small enough that it can be earned through side hustles or earned in bonuses or raises at work.
If you're just starting and want to stick with something easy, investing $500 in a low-risk environment is probably your best bet.
There are also options for people who:
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Want to take on more risk
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Already have some experience with investing
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Know that they can handle the highs and lows of the stock market
We’ll cover these options a little later. For now, let’s look at 7 safe options to Invest $500.
7 Options on How to Invest $500 Long-Term
1. Index ETFs
Our first option for investing $500 is to invest in an index ETF. An exchange-traded fund, or ETF, is a security that tracks an index of investments, like the S&P 500. Because they're tied to an index and not a single company, you can't really lose money with them and earn consistent returns over time.
Additionally, there are also several index ETFs you can invest in with no fees, which is unheard of in the stock market. Vanguard has remained at the forefront of this movement by offering some of the lowest-cost ETFs on the market.
If you regularly contribute to an index ETF within a retirement account like a 401(k), your money will grow exponentially over time. You'll also get a tax break when you contribute and won't have to pay taxes on the money again until you take it out of the account in retirement.
2. Roth IRA Account
A Roth IRA is an account you open up and invest with post-tax money. The trade-off for paying taxes on your earnings now, however, is the freedom to withdraw your money in retirement without having to pay any additional taxes.
It's a great system for newly employed people because it teaches them how investing works and lets their money grow faster than it would if they fell into high tax brackets. If your employer offers a Roth 401(k), you should take advantage of that too.
3. Robo Advisor Service
Another option that's perfect for beginners is a Robo advisor. Robo advisors are automated investment platforms that invest your money for you based on how much risk you're comfortable with.
For example, if you have $500 to invest today, a Robo advisor will use algorithms to determine how much money should go into stock ETFs vs. bond ETFs. They'll also automatically rebalance your portfolio as the investments change over time.
Robo advisors are becoming increasingly popular for people to start investing small amounts of money. Fees are affordable, and you don't have to worry about the nitty-gritty of building a portfolio at first.
4. Self-Education
Investing in yourself has the best ROI of all. No matter your current career status, there's always room for improvement and education. Investing is no different, and you'll need to learn as much as you can before you try to build an actual portfolio.
There are plenty of online courses, webinars, and personal finance blogs out there that can help you learn about the basics of investing. Ask your friends interested in money what they're reading, too. The more people you have to bounce ideas off of, the better prepared you'll be when it comes time for you to take action.
Of course, not all knowledge is free. If you're serious about investing, there will most likely be some paid options available to you.
5. Repay Your Debt
Before you invest $500 in one of the above options, look at your debt. Your interest rate is probably higher than the returns you'll see from investing, so paying off your debt now is going to be a guaranteed boost to your net worth.
To figure out whether or not you should pay off your debt, you'll have to do a little math. To repay your debt quickly, try using the Debt Snowball method. That way, as soon as one of your debts is paid off, you can take that payment and put it toward another loan.
Once the slate is clean, you'll be able to invest $500 and see a great return on your money.
6. Stocks
If you're not quite ready to build a sophisticated enough portfolio for bonds, index ETFs, or Robo advisors, you can always invest in individual stocks.
There are plenty of top-performing stocks that pay impressive dividends every quarter. It's important to note that this type of investment is riskier than the other options on this list because your money isn't diversified across several companies.
That said, with the proper amount of research and due diligence, you could make a lot of money off individual stocks throughout your investing career.
Fractional stocks are also an option if you only have $500 to invest. This is when you buy partial shares of a company to increase your positions over time.
Another 4 Options. How to Invest $500 Dollars for Quick Returns
The following four options are great for people who want to earn money as quickly as possible. Of course, the greater the reward, the greater the risk. If you want to invest $500 for quick returns, any of these options will work:
7. Copy Trading
Copy Trading is for more advanced traders. You can make money by copying people who are already successful investors on the platform, but it's not as simple as that.
You'll have to study your potential traders' strategies closely before you invest anything. Their success is directly correlated with the amount of money you make, so make sure their skills align with your current situation.
Copy-trading was popularized by the rise of social trading platforms like eToro and Copy Trader and is an excellent option for investors with varying levels of experience. With $500, you can even copy two or three traders at a time.
8. Cryptocurrency Investing
If you haven't jumped on the cryptocurrency craze, now's your chance. Blockchain is changing how we interact with money, and there are already thousands of people making a living from investing in cryptocurrency.
Cryptocurrencies are volatile and complicated, so don't dive in unless you're prepared to learn as you go. Some great courses online can teach you how to build your first cryptocurrency portfolio.
The speculative nature of cryptocurrency means that you can invest $500 and see a handsome return. Of course, the risk is just as high, so don't invest anything that you're not prepared to lose.
Parallel to Bitcoin, NFTs are the next big thing in gaming.
The benefits of blockchain go beyond cryptocurrency, too. Blockchain-based games are also an exciting way to learn about smart contracts, which are contracts that store payment terms on the blockchain itself.
9. Penny Stocks
Penny stocks are great because you can invest $500 with ease. But be warned, they are also incredibly speculative, so tread carefully.
A penny stock is any company worth less than $5 per share. These companies are not very well known and usually trade outside of the major exchanges.
Penny stocks are often associated with pump and dump schemes. This run on the stock will cause the price to rise, and when it gets too high, you'll sell your shares at a higher price than what they're currently worth. When you buy shares of a penny stock, other investors will find out about your purchase and may start buying up shares too.
Of course, this means that you risk losing all of your initial investment in penny stocks. Make sure to do plenty of research before you invest in any penny stock to avoid scams.
The benefits of penny stocks are investing a small amount of money and getting a significant return. You could earn ten or twenty times your initial investment.
Penny stocks are also quick to turn over, which means that if you're lucky enough to hit the jackpot with one stock, that money is only going to be locked up for one round of trading before you can take it out.
10. Option Trading
Options trading is one of the least common ways to invest $500. But it's also one of 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 set price on or before a specific date. You can purchase these options directly from the market or through an options broker.
You'll have to pay a small premium for these options, but if your predictions pan out, you could potentially get a much higher return than what you paid in premiums.
The appeal of options trading is that it's straightforward to test and see if you can predict how the markets will move before investing too much. If you buy an option and it doesn't work out, then you've lost $50 or $100 at most.
The downside of options trading is that the market is complicated and requires extensive research in order to predict how the stocks will move. But this also means that there's a good chance for high returns if you get it right.
3 Tips to Invest $500
When you've chosen a preferred investment, it's time for action! Here are three tips to help you make a successful start.
1. Keep your expectations low
The bottom line is this: don't expect huge returns from investing in the stock market or any kind of investment at all, for that matter. In fact, most people fail to earn back the money they initially invested.
Be happy with small returns and know that you're playing the long game. Money should be considered an investment in your future worth more than anything else, so don't stress yourself out by putting too much pressure on yourself to make money immediately.
2. Do not invest all $500 at once
If you're new to investing, this tip couldn't be more important. It's essential to avoid bad habits from the start, one of these being losing your entire investment in one lousy stock.
Instead, break up your money into several shares of different companies. Research where to invest $500 and then invest it equally in each company you want to try. This way, if one of your stocks tanks, then you won't lose all of that initial capital right off the bat.
$500 is not a lot of money in the world of investing. That means that if you make one wrong investment, then you could lose the bulk of your capital very quickly.
3. Don't Invest With Emotions
It's hard not to get emotionally attached to your investments, but that can end up ruining you. Stocks are constantly on the move, so don't panic if your stocks drop in price at first. Instead, look at them as potential opportunities for investment.
If the stock is something you still think will do well over time, there's no reason to sell it. However, if the stock looks like it won't get any higher prices than what you bought, consider selling and moving on to another company.
The last thing you want is to get attached and ecstatic about a stock that drops in value. That's never a good sign of investing success.
How to Start Investing $500 - a Step-by-Step Guide
1. Set Clear long-term goals
The first step is to set long-term goals. Be as specific as possible when setting these goals, such as the amount of money you want to earn or how much time you have for your investments. This will help you understand how much money you're willing to commit and what kind of profits you'll need to consider this a successful investment.
Your goals can also include how you want your life to change, for example:
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Fund Retirement
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Financial Independence
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Buy a New House
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Got Married
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Start a Business
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Travel the World
Whatever your goal, it's important to set and visualize these goals and plan accordingly. This way, you'll be prepared for success or failure either way.
2. Decide How Much to Invest Regularly
The next step is easy, but it's one of the most critical steps in this process. Decide how much you want to invest regularly and stick with that amount for a while.
If you can't commit a specific amount, then start small! It can be easy to get overly excited about investing, but it's essential to take your time and slowly build up the intensity.
Approaching investing with a clear mind is one of the best ways you can stay committed to building wealth over time.
3. Open An Investment Account
Regardless of which method you choose, you'll need to have an account with the brokerage that you're investing through. This is important because you can't buy stocks without having an account first.
Even crypto trading requires an account on an exchange, so think of your investment account as the starting point for all of your investments.
Broker Profiles
eToro
eToro is a world-renowned social trading network that allows you to trade in all kinds of financial instruments. The company has been around since 2007 and is regulated by the FCA, making it one of the most reliable brokers out there.
Interactive Brokers
Interactive Brokers is a brokerage that's based in the United States. The company has been around since 1980 and now offers Robo Advisory.
eOptions
For those thrill-seekers out there, eOptions might be the perfect fit for you. It is a binary options platform that allows traders to go long or short on different stocks.
Coinbase
Coinbase is a giant in the crypto space. It offers cryptocurrency exchange services in over 100 countries, and it's also one of the most secure exchanges out there.
4. Learn, Learn, Learn!
Once you've opened an account, it's time to learn how to invest appropriately. There are tons of opportunities out there, but the only way you can take advantage of them is by learning everything about investing.
Self-education is one of the best ways to keep your mind sharp and fully prepared for success. It doesn't matter what you choose to learn first, as long as you're learning and growing.
Summary
Now that you know how to invest $500, all that's left is to take action! Remember that the only way to succeed with investing is to keep growing and evolving your skills. A consistently profitable strategy will give you a better chance for long-term success.
FAQs
What is a good return on my investment?
Choosing a high yield is going to hurt you in the long term. Returns of 3% per month are pretty great, but it's also not something that will keep your investments safe from volatility. Aim for returns that are higher than inflation and yet realistic enough that you can maintain those levels year after year.
Is cryptocurrency investing legal?
Not all countries are on the same page regarding cryptocurrency trading. Some countries have outright banned the use of cryptocurrencies, whereas others are still debating or even drafting laws for this new technology.
Is buying stocks online safe?
You'll need to open an account with a brokerage company before you can start investing in stocks. Brokerages are considered one of the safest types of investments. Financial authorities regulate the company, and you can easily open an account online in a few minutes.
What are the advantages of buying stocks online?
Just like with anything else, there are pros and cons. Online brokerages will give you access to hundreds of stocks that might not be available at your regular bank. You'll also have direct access to information about different companies.
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Team that worked on the article
Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data. He is also an educator in the field of finance and technology.
As an author for Traders Union, he contributes his deep analytical insights on various topics, taking into account various aspects.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.