One very common misconception among non-investors is that getting into the stock market requires a fortune. In reality, that’s baloney. In this article, I’ll show you how to invest $500 and begin building wealth today.
8 ways to invest $500
1. Buy stocks using a robo-advisor
A robo-advisor is an algorithm that automatically invests your deposits in a diversified portfolio of assets (typically stocks and bonds) based on your needs and risk tolerance. A robo-advisor offers many benefits, particularly for new investors.
The first benefit of using a robo-advisor is that you don’t need much money to get started. Many robo-advisors let you get started with as little as $1. In other words, $500 is more than enough.
The second benefit of using a robo-advisor is that it requires minimal effort on your part. A robo-advisor will identity assets suited to your financial needs and purchase them on your behalf. It will then maintain your portfolio automatically.
The third benefit of using a robo-advisor is that your portfolio will likely perform quite well. The best robo-advisors invest your money in index funds, which have historically outperformed other types of investment funds.
The fourth benefit of using a robo-advisor is tax efficiency. You can open many types of investment accounts through a robo-advisor. That includes retirement, education savings, and wealth transfer accounts that often come with higher minimum balances on non-robo-advisor platforms.
Wealthsimple is my robo-advisor of choice. It’s where I keep most of my money. You can use my affiliate link to learn more and earn us both a discount on fees.
2. Take advantage of your employer match
If your employer offers a retirement account matching program, you’d be crazy not to take advantage of it. An employer match equals free money. It’s typically quite liberal, too; according to Investopedia, the average employer match is 50 cents for every dollar you invest, up to a limit of 4.3% of your annual salary.
Enrolling is often as simple as contacting HR, filling out some paperwork, and depositing money. Those deposits will typically be invested in stocks and bonds on your behalf.
The downside of investing in an employer-sponsored retirement account is that you typically won’t have much control over your portfolio. Fees can also be relatively high.
Some people get around this by investing just enough to maximize their employer match then putting the rest in an individual retirement account. Speak with your financial advisor to come up with the best approach for you.
3. Start an online business
Do you have a great idea for a blog or e-commerce website? With platforms such as WordPress and Shopify, you can get started with far less than $500. For reference, I started Rinkydoo Finance more than a year ago and still haven’t spent $500 on my theme, hosting, or anything else combined.
Beyond blogging, other popular online businesses include:
- educational websites
- selling products on existing marketplaces (i.e. Amazon and eBay)
- making YouTube videos
- running a marketing agency
One major advantage of investing $500 in an online business rather than the stock market is that you’ll potentially earn much more. You can spend $500 setting up a blog and eventually earn that much or more per month – something that just isn’t possible in the stock market.
On the flip side, however, you could also lose all of your money fairly quickly via your own online business. Consequently, you may want to avoid this strategy if you’re risk-averse.
4. Buy bonds
Speaking of risk-aversion…
If you’re wondering how to invest $500 without any possibility of losing it all, U.S. bonds are hard to beat. They’re government-backed assets that pay a guaranteed amount of interest annually for a set number of years before returning 100% of your capital to you. People typically only lose money with bonds when they sell prematurely.
The downside with bonds is that they don’t yield much of a return. While the U.S. stock market returns 10% each year on average (according to NerdWallet), the U.S. Department of the Treasury lists 30-year U.S. bond yields at under 2%. You won’t even beat inflation at that rate but it’s an option worth considering if you’re risk-averse.
5. Pay off high-interest debt
If you have high-interest debt (i.e. a balance on your credit card or any other loan charging double-digit interest), putting your $500 towards it will generate a virtually unbeatable return.
Look at it this way. As I mentioned earlier, the stock market returns 10% annually on average. A typical credit card, meanwhile, might carry an interest rate as high as 22%. Therefore, it would make sense to pay off your credit card rather than invest in the stock market.
Check out my second point in this article for some more food for thought regarding financial prioritization. It’s crucial information if you’re looking to maximize every dollar’s impact.
6. Take an online course
Education can change your life. I’m living proof of this; I spent two years taking an online computer programming course in my spare time. I subsequently leveraged that knowledge and launched a new career in tech (which was accompanied by a massive pay raise).
My point? Learning pays off. Platforms such as Coursera host courses from a variety of recognizable institutions, including Duke University, Google, IBM, and Stanford University. Upon completion, you’ll typically receive a certificate you can use on your resume to secure higher-paying work.
Not sure what you should study? Check out this list of well-paying and in-demand jobs for some ideas.
7. Buy books
Another powerful way to invest $500 entails purchasing (and, of course, reading) books that expand your knowledge and help you learn new skills. I currently have an Audible subscription that costs me just over $20 per month. At that rate, I’d enjoy two years of reading for $500. Not bad!
Check out this list I put together of great financial books that will have you thinking about money in more productive ways.
8. Buy items that will improve your quality of life
One of my best purchases in the past 12 months was a used Herman Miller Aeron. Now, it might seem weird to describe an office chair as an investment but it absolutely was – and a great investment at that considering the back pain I previously suffered from is virtually gone. It’s hard to put a price tag on that.
If you can think of anything similar that would improve your physical and mental health (along with your productivity), putting your $500 towards it may be a good bet. The way I see it, a happier and healthier you has the potential to earn more. So while quality of life-enhancing purchases may not seem to produce a direct financial benefit, it all comes back around.
I put together this list of great things to spend money on for increased success and happiness. Check it out!
How to invest $500: Conclusion
While $500 may not seem like a fortune, it can go a long way towards helping you achieve a better financial future. I hope at least one of the ideas in this article has resonated with you and helped you understand the best path forward as you look to invest $500.
Click here to check out my other articles about investing.
