Many multi-millionaires started investing small sums, even $10 or $25 per month! The key to making your $500 grow is to put in an investment that suits your risk tolerance and goals and add more regularly.
Just a guess here, but I suspect most people who don’t invest avoid it because they assume you need to start with thousands of dollars.
12 Best Ways to Invest $500
So what’s the best way to invest $500? After all, there are plenty of options. If you have $500 or more to spare and are ready to invest today, here are the 13 best ways to invest for the short-term or the long haul.
1. Invest in the Stock Market
The stock market is one of the best options for your $500. Historically, it’s returned an average of around 10% annually, or 6% or 7% when accounting for inflation. There are undoubtedly good and bad years, but this is the average return for those with a long investment time horizon.
That said, you may feel intimidated by individual stocks, and some stocks could require more than your initial $500 investment in the first place. In that case, consider using a platform like M1 Finance.
With M1 Finance, you can place your $500 into investment “pies” that are expertly curated and made up of fractional shares of stocks that can help you diversify your portfolio right off the bat.
You can also set up automated investments to add to your $500 portfolio weekly (or monthly) to help it grow over time. M1 Finance also has a highly-rated mobile app that lets you track your investments and progress.
How much wealth can you build with M1 Finance? The chart below shows how your initial $500 investment might grow over 20 years in a few different scenarios:
How an Initial $500 Investment Might Grow Over 20 Years
| 8% (20 YEARS) | 10% (20 YEARS) | 12% (20 YEARS) | |
|---|---|---|---|
| Invest $500 and Leave It Alone | $2,330.48 | $3,363.75 | $4,823.15 |
| Invest $500 and Add $20 per Month | $13,313.35 | $17,109.75 | $22,115.73 |
| Invest $500 and Add $100 per Month | $57,244.84 | $72,093.75 | $91,286.08 |
As you can see, investing $500 and leaving it alone can help you double your initial investment several times over 20 years.
However, you start to see progress by regularly adding to your investments. If you invest $500 or more and add another $100 per month for 20 years, compound interest comes into play.
2. Real Estate Crowdfunding
With $500, you can also invest in real estate, but not the traditional way. Thanks to technology and the internet, you don’t have to save tens of thousands of dollars to invest in apartment buildings or individual homes.
Instead, you can use a real estate crowdfunding platform to invest much smaller sums without dealing with the hassles of being a landlord.
Fundrise is one of the best platforms for this strategy because it lets you invest in commercial and residential real estate with a minimum investment of $10.
If you’re comparing real estate returns vs. index funds or other stock market investments, you should also know that Fundrise investors achieved a return of 7.31% in 2020, followed by 22.99% in 2021.
However, Realty Mogul also lets you create a diversified real estate portfolio spread across multi-family dwellings, self-storage, medical buildings, office buildings, retail, and more.
Next up, consider opening a Roth IRA if you have $500 to invest. This retirement account lets you invest with post-tax dollars, and your money grows tax-free over time.
Another amazing Roth IRA secret is that you can withdraw money from your account after age 59 ½ without paying income taxes.
Yes, you can build up streams of tax-free money for retirement!
A Roth IRA also lets you withdraw your contributions (not your earnings) before retirement age without paying the penalty. It offers added flexibility if you think you may need to access this money for emergencies over the next five or ten years.
As you research this option more, note that there are many places to open a Roth IRA, including platforms like M1 Finance and Robinhood. If you’re not a fan of the latter, there are Robinhood alternatives you can consider.
If you want more assistance planning your portfolio, you can use a robo-advisor like Betterment. With Betterment, you can get personalized help when choosing investments for the initial $500 you add to your account.
You can also benefit from perks and added features like tax loss harvesting, portfolio rebalancing, etc.
Note that an annual management fee of 0.25% applies when you open an investment account with Betterment. However, no minimum balance is required, making it an excellent platform for new investors.
The chart below shows how these options for your Roth IRA stack up in terms of their investment options, fees, and minimum balance requirements:
Comparing Roth IRA Options: Investments, Fees, Minimum Balances
| BETTERMENT | M1 FINANCE | ROBINHOOD | |
|---|---|---|---|
| Annual Management Fees | 0.25% to 0.40% | No Account Management Fees | No Account Management Fees |
| Minimum Balance Requirement | $0 | $100 for Investment Accounts, $500 for Retirement Accounts | $0 |
| Investment Options | Stocks, Bonds, ETFs, Cryptocurrency, and More | Investment “Pies” With Fractional Shares | Stocks, Bonds, ETFs, Cryptocurrency, and More |
| Reviews | Betterment Review | M1 Finance Review | Robinhood Review |
4. High-Yield Savings Account
If you want your $500 in a place where you can easily access it, consider putting it in a high-yield savings account that offers some interest while you figure out your next move.
While there are many good options for online savings accounts, a bank called UFB Direct currently offers the highest interest rate.
5. High-Yield Certificates of Deposit
While high-yield savings accounts let you earn a guaranteed return while keeping your cash accessible if you need it, high-yield certificates of deposit (CDs) offer some of the same benefits.
You must agree to “lock up” your money for a specific period, usually one month to several years. However, you get a fixed rate of interest you can count on, and your funds are protected by FDIC insurance.
The best CD rates are also pretty high right now. You can even get an 11-month no-penalty CD from CIT Bank that earns 4.90% APY. Discover also offers CDs with exceptional rates and no account fees.
6. Invest in Online Business
It might surprise you that you can invest your $500 in various online businesses, also known as digital real estate. Some examples include:
- Authority websites
- eCommerce store
- Digital products like eBooks and courses
- Domain names you can buy and sell
- Email lists you can build and sell to others
- Subscription sites that require monthly or annual fees
- Mobile apps
- YouTube channels that are ultimately monetized
- Social media channels that are monetized over time
The website you’re reading right now (GoodFinancialCents.com) is my prime piece of digital real estate. I have earned millions of dollars in blogging over the last decade, and I built the first version of this site with less than $500 in start-up cash!
Remember that earning money with digital real estate takes time and that you may not see a return on your investment for months or years. You’ll also have a ton to learn when you start, and it takes time to get the hang of it.
7. Dividend Stocks
When you have $500 to invest, you can also consider diving into the world of dividend stocks. Dividend stocks are like any other stock, except they pay regular dividends over time, which many investors use as passive income to fund their lifestyles.
Motley Fool is a leading dividend stock investing platform. They recommend top dividend stocks and offer a detailed analysis of each company, model portfolios, live streaming events, and more.
Five hundred dollars may not buy every popular dividend stock, but it’s enough to start.
If you want to start investing but feel overwhelmed at researching options and building your portfolio, that’s precisely what robo-advisors are for.
These online platforms work similarly to traditional financial advisors, with much lower fees and a fully digital experience.
Some of the best robo-advisors to choose from include Betterment, M1 Finance, SoFi Money, Personal Capital, and Wealthfront.
Each of these robo-advisors does things slightly differently, yet they help their clients
create diversified portfolios that help them grow wealth over time. They also offer extra tools that help investors streamline their efforts and minimize taxes as they invest.
The chart below shows some details on the top robo-advisors and how each one works:
Leading Robo-Advisors and Their Operations
| BETTERMENT | M1 FINANCE | PERSONAL CAPITAL | SOFI MONEY | WEALTHFRONT | |
|---|---|---|---|---|---|
| Annual Management Fees | 0.25% to 0.40% | No Account Management Fees | 0.49% to 0.89% | No Account Management Fees | 0.25% |
| Minimum Balance Requirement | $0 | $100 for Investment Accounts $500 for Retirement Accounts | $100,000 | $0 | $500 |
9. Series I Savings Bonds
Series I Savings Bonds (I Bonds) offer another way to grow your initial $500 investments with excellent returns.
This government-backed bond option lets individuals invest up to $10,000 per year, and the current rate for I Bonds is set at 9.62%. The rate does change over time based on market conditions, and interest is compounded semi-annually.
You should also know that Series I Savings Bonds require you to keep your money invested for at least 12 months. And if you cash in your I-Bond within five years, you’ll have to forfeit three months of interest.
It’s easy to see how Series I Savings Bonds can be a good choice for investors who know they won’t need to access their money for at least one year.
After all, the yield offered is guaranteed, unlike stocks and other investments that can lose value in the short term.
10. Invest in Crypto
Maybe you want to invest in cryptocurrency to hold the investment for the long term. This is commonly referred to as HODLing, or “holding on for dear life.” A long-term strategy makes sense since many crypto coins are worth far less now than they were a year ago.
To start, open an account with a crypto exchange. Some of your options include Gemini, Binance.US, Coinbase, and KuCoin.
Any of these platforms can help you invest in Bitcoin and other cryptocurrencies with a few buttons, but make sure you do the proper research to find out which one is right for you.
11. Invest in Art and Collectibles
Investing in art and collectibles may be somewhat out of the mainstream, but the strategy is growing in popularity. There are quite a few online platforms that let you crowdfund investments into physical and digital art.
For example, Masterworks lets you purchase fractional ownership of artwork or collections of art. According to Masterworks, their platform has more than 755,000 users, and their investors have achieved net annualized realized returns between 9% and 39%.
On the flip side, you can invest in non-fungible tokens or NFTs. These digital pieces of art can grow in value just like traditional art. Once you learn more about NFTs, you can buy them on platforms like OpenSea and Rarible.
Finally, you can invest in sports cards to achieve long-term growth.
12. Pay Down High-Interest Debt
Consider paying down your high-interest debt as a final option for your first $500. It won’t help you grow wealth in the traditional sense, but it can help you avoid throwing away a ton of money on interest each month.
You’ll earn a “return” on your investment commensurate with whatever interest rate you pay.
The average credit card interest rate is 23.99%, so paying down $500 in debt at this rate helps you get a similar return.
If you had $500 in credit card debt at 23.99% and you only paid $25 per month, for example, it would take you 24 months to pay it off, and you would fork over $99 in interest (almost 20% of what you owe) along the way.
If you have more than $500 in high-interest debt hanging over your head, you may even want to focus on getting out of debt before turning your attention to investing.
After all, paying off debt can help you improve your cash flow, giving you much more cash to invest over time.
Do’s and Don’ts of Investing $500
All of the investment options on this list can work, but you have to know your goals before you get started. In the meantime, you should strive to be realistic about growing your $500 reasonably and responsibly.
The following tips can help you reach your goals without taking on too much risk or getting in over your head:
Investing $500 Do’s:
- Keep in mind when you need to access your money. Don’t lock away cash you may need to access in the short term. Try to build an emergency fund that you can use to cover unexpected expenses or if your income drops suddenly.
- Look for options with low fees or no fees. This is important because you don’t want your investment principal depleted by hidden charges.
- Try to add to your investment every month. Investing $500 gives you a great start, but you’ll grow wealth faster if you can invest more every month. Consider setting up automated investments so your cash is invested on your behalf, even if you can only set aside $10 or $20 per month at first.
- Get help if you need it. If you are uncomfortable managing your investments, don’t be afraid to use a robo-advisor. Some options, including M1 Finance, even let you invest without long-term management fees.
Investing $500 Don’ts:
- Lock up money you may need in the next few months. If you know that you’ll need your $500 within the year, consider putting your money in a safe place, like a high-yield savings account, that will let you access your cash when you need it.
- Expect to make quick and easy money. “Get rich quick” stories may be popular on the internet, but they’re far from common. Remember that turning $500 or more into real wealth takes time, so you need to be in it for the long haul.
- Invest without considering your long-term goals. Make sure you know for sure what you’re trying to accomplish with your initial $500 before you dive in. Not only should you consider your investment timeline, but your risk tolerance as well.
- Forget to set up an investment plan. $500 will grow much faster if you add to it monthly. Consider automating your contributions to make saving that much easier.
The Bottom Line on Investing $500
Having $500 to invest feels great, especially when you have been building to this point for several months or years.
However, you’ll want to consider all the best options before you choose a
platform or investment strategy for your money. Remember that the best strategy depends on where you’re at in your financial journey.
I so much appreciate your advice on this. But I have a question. Most of my friends who invested in stock market usually complain about losses.
Do you mind sharing how to mitigate the risks involved with stocks?
Thank you
Wawu! I once tried my luck investing $2000 in NFTs but everything went southward in the end, but may be it was due to my low orientation in DeFi though.