How to invest your first $500

Spend any time in personal finance forums and you’ll quickly see that the same questions come up time and time again. A common one follows the form of “I have $X, what do I do with it?”. The $X is often a big number, $20,000, $50,000 – but what if you just have a small amount? What do you do if you just have $200, $400 or $500 to invest?

It can seem like there are so many hurdles to investing your first few dollars. Discount brokers online and mutual funds will take your money, but only if there’s a substantial amount of it. The initial deposit requirement can be a minimum of $1,000, which can derail someone with the best of intentions when it comes to investing for the future.

You kind of go from excited, clutching your money close to your chest, to discouraged super quickly. That money sits in a savings account somewhere for a while before you dip it into when something unexpected comes up. Six months later, you’re wondering where your savings went and you’re back to square one.

Here a few strategies you can explore when investing your first $500:

1. Use the power of robots

We live in the future, and in the future your money is invested by computers…the future is fairly mundane, huh?

The investment industry is a rigged game and you have to be crazy careful. The system just isn’t designed with your best interests in mind. There are a lot of people who invest in mutual funds with the help of a financial advisor…mutual funds with a ton of fees of which they just aren’t aware. These fees are either not made known, or use opaque terms that cloud the understanding of what’s happening.

Throw in the fact that your “financial advisor” is often nothing more than a glorified salesman whose take-home pay depends on the amount of mutual funds he sells…and you have an industry where the incentives just don’t line up. What’s best for the advisor isn’t what’s best for the client.

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Thankfully, there are a host of robo-advisors coming up that are trying to fix that. By moving everything online, they can do away with a lot of the costs associated with running a physical business and as a result, focus on delivering value to their clients.

Two of the biggest ones are Wealthsimple and Acorns. Both of these services provide passive-investment portfolios made up of ETFs and aim to provide people with a better retirement option than what’s currently out there. Betterment also has no minimum investment amounts right now, while you can start investing with Wealthfront with just $500.

Honestly…if you:

  1. Have a small amount of money to invest
  2. Aren’t into spending a lot of time learning about investing
  3. Want a hassle-free option

….then an online robo-advisor may be the magic solution for you!

2. Invest in yourself

Okay okay, so this one might seem like word play…but really: the best way to invest is to invest in yourself. There are many ways to do this. It could be as simple as paying down any debts you have. The debt you pay down today is interest that you don’t have to pay tomorrow. You’re saving future you a whole mess of dollars that can then be invested later.

When it comes to personal finance…people tend to focus on how much they can save. That’s great but often comes down to, “can I save a dollar here? And a dollar there?”. But why is it that people don’t think, “How can I make more money?” After all, if you make more money, there’s money to be saved!

You could take a few classes to gain a money-making skill. Maybe you spend that money to learn how to develop web sites and who knows; a few months in you could freelancing on Elance, earning some good cheddar on the side.

Or you could use the money to gain a career certification. Certifications are great justifications for raises, and if you decide to look for a new job at some point, they look great on a resume and serve to raise your market value.

Finally you could just set that money aside as an emergency fund. Put it in an account that penalizes you for withdrawing so you aren’t tempted to touch. Future you will thank past you when you inevitably run into a financial hiccup in the future. Need an unexpected root canal? Just turn to your emergency fund (we actually don’t wish that on anyone, it’s just an example!).

3. Open up a 401(k)

401(k)s are a really good option for those with a small amount of money to invest. There’s not as much selection as other platforms, but you can still filter your investment by risk preference.

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Furthermore, if you work for a company that offers a matching program and you aren’t taking advantage of that offer… that is a CRIME! This should be the reason you open a 401(k) if nothing else. Even if you were to hold your 401(k) funds as pure cash you are making a better return than you could anywhere because: your employer is just handing you money!

It can seem like you’re not accomplishing anything by opening up a 401(k) and funding it with a meagre amount…but think of the long run. If you can commit to adding money to 401(k) on the regular, no matter how small, then you are at least doing something. And in the long run, that money will build up and compound on itself. Invest $500 and commit to adding $100 to that pool every month, and that 401(k) can grow to $80,000 in 30 years (assuming a fairly conservative return of 4.5% per year).

Even a small amount of money can be invested wisely, you just have to take a minute to think about what that means to you and where that money is going to do the greatest good in the short and in the long-term. You’ve got more options than you think!


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