How to Invest $500 to Start Building Wealth - SmartAsset (2024)

How to Invest $500 to Start Building Wealth - SmartAsset (1)

If you have $500 that isn’t earmarked for bills, that’s enough to get started in investing. It may or may not feel like a fortune to you. But with the right investments, it can certainly be used to start one. So if you’re looking to take $500 and turn it into something more, here are two basic questions you’ll need to answer if your goal is to start long-term investments and build long-term wealth.

Afinancial advisorcan answer your questions, while also helping you build a financial plan for the future.

What Types of Securities to Invest In

There are two basic considerations in deciding how to invest $500 or any amount of money for that matter. One is which types of securities you intend to invest in. This could include stocks, bonds or alternative investments, among others.

Investing In Stocks

To get started, you don’t have to spend $500 on one stock. Popular companies, notably those amongFAANG stocks (Facebook, Amazon, Apple, Netflix and Google) can be bought for hundreds to thousands of dollars per share. But then your $500 would run out if you’re lucky to get buy one.

But you can make it easy on yourself to buy stocks of smaller companies for as little as $1 or $5 per share. In fact, starting out small with investments in multiple stocks can create an opportunity for you to develop a diverse portfolio.

Investing In Bonds

Bonds can be a great alternative if you are not a fan of participating in a volatile stock market. Bonds are a fixed-income security where you lend money to the government or a corporation, with you getting money back from them over a period of time. And while bonds don’t yield higher returns like a stock potentially could, bonds offer less risk in losing money than a stock could, too.

Given the characteristic of bonds, they offer good diversification in your portfolio if or when you add stocks.

High-Yield Savings Account

You could invest in a high-yield savings account. At time of writing it was possible to find high-yield savings accounts that offer an annual percentage yield greater than 4%.

If you put money in every month, of course, you would make even more. The advantage of putting your money in a high-yield savings account is that you take the money out whenever you want, for an unexpected expense or emergency, without a penalty. That’s also the disadvantage. You won’t save much if you pull the money out of the account.

Certificate of Deposit (CD)

A certificate of deposit, or CD, is a low-risk way to make money, and banks and credit unions offer them. But the important thing to remember about CDs is that they have maturity dates. You purchase a CD, and the maturity date may only last 28 days, or it might be as long as 10 years.

As long as you purchase a CD through a reputable institution that is FDIC insured for up to $250,000, you won’t lose your money. The only way purchasing a CD is a risk is that if you buy a certificate of deposit and then decide to take back your money before the maturity date, you will pay a withdrawal penalty.You can find some of the best CD rates here.

Where to Put the Securities You Invest In

Once you have settled on which types of securities to invest your $500 in, you should consider what type of financial structure to put them in. You have many choices, and each one offers distinct advantages. Here are a few of your choices.

Commission-Free ETFs

Many online brokerages offerexchange-traded funds(ETFs) to clients. These are similar to mutual funds, but they can be bought or sold on a stock exchange. These ETFs are funds that contain a lot of different kinds of investments. You might invest in an ETF that holds stocks, commodities,bonds or a combination of all three. Because you’re investing in a lot of assets, your risk is lower than if you were investing in one asset.

Mutual Funds

Getting started with a mutual fund with $500 in your pocket is quite simple. There are a lot of mutual funds that allow investors to get started with no minimum requirement. That means you can begin investing with as little as $1.Mutual funds are often led by active managers who buy stocks, bonds and other investment vehicles and those managers decide when to sell them. And like ETFs, diversification within your portfolio in a mutual fund allows you to be less prone to risk.

An IRA or Roth IRA

Consider investing $500 in an individual retirement account(IRA), which gives you options, including stocks, bonds and mutual funds. If you don’t have an IRA, $500 would easily get you started at many banks and credit unions. You can also open up IRAs at online brokerages and investment companies.In fact, you may be able to use some of the $500 to open an IRA and invest the rest of your money into another financial vehicle. (Some financial institutions require an amount of $500 or less.)

And if you open an IRA, you’ll have to decide whether you want to open a traditional IRA or Roth IRA. A traditional IRA will allow you to take a tax deduction. But you’ll pay taxes years later when you take distributions as a retiree.A Roth IRA will not give you a tax benefit the next time you file your taxes. But when you retire, you can withdraw the money tax-free.

Other choices include a 401(k), a 403(b), a 457, a 529 plan and even a health-savings account. All of these can “hold” whatever securities you decide to invest in. Just be sure to make sure your choice reflects your goals (college, retirement, buying a residence), timeline, tax needs and your personal risk profile.

Bottom Line

How to Invest $500 to Start Building Wealth - SmartAsset (3)

If you have $500 to invest, one thing you don’t need to do is rush into any investment. You also shouldn’t invest $500 if you feel like you’re going to possibly need it soon. The best way to earn a lot from an investment is to give your money time to grow. So if you do think you need the money, or if you’re simply uncertain what to do, investing the $500 in a high-yield savings account is probably the way to go. You can always later take the money out, without being penalized.

Tips For Investing

  • If you want to learn about investing, the services of a financial advisor can be most helpful. Finding a qualified financial advisor doesn’t have to be hard.SmartAsset’s free toolmatches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals,get started now.
  • Arobo-advisoris a unique alternative to a financial advisor, as they can automatically manage your investments based on your investor profile.Robo-advisorstypically have lower fees and account minimums. And this makes them a good option for investors with less money to invest.

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How to Invest $500 to Start Building Wealth - SmartAsset (2024)

FAQs

How to Invest $500 to Start Building Wealth - SmartAsset? ›

An IRA or Roth IRA

How to build wealth with $500? ›

How to invest $500 to begin building wealth
  1. 7 best ways to invest $500. It's never too early to start investing for your financial future. ...
  2. Invest with a robo-advisor. ...
  3. Contribute to a 401(k) or IRA. ...
  4. DIY with commission-free ETFs. ...
  5. Buy fractional shares of stocks. ...
  6. Buy bonds. ...
  7. Invest In real estate. ...
  8. Pay off debts.

How much money do I need to invest to make $500 a month? ›

Some experts recommend withdrawing 4% each year from your retirement accounts. To generate $500 a month, you might need to build your investments to $150,000. Taking out 4% each year would amount to $6,000, which comes to $500 a month.

How to make $500 a month in passive income? ›

How to Make $500 in Passive Income Every Month
  1. Stock Market Investing.
  2. Sell Digital Products or Courses.
  3. Invest in Real Estate.
  4. Earn Interest on Your Cash.
  5. Start a Side Hustle.
Apr 12, 2024

How much do I need to invest to make $1000? ›

Invest in Dividend Stocks

A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.

How do I double my $500? ›

5 ways that you can double your money
  1. Get a 401(k) match. Talk about the easiest money you've ever made! ...
  2. Invest in an S&P 500 index fund. An index fund based on the Standard & Poor's 500 index is one of the more attractive ways to double your money. ...
  3. Buy a home. ...
  4. Trade cryptocurrency. ...
  5. Trade options.
Nov 3, 2023

How to turn $500 into more money? ›

Below are five ways to invest $500—and potentially turn it into much more.
  1. Certificate of Deposit (CD) CDs are considered low-risk investments. ...
  2. 401(k) A 401(k) is a common employee benefit. ...
  3. IRA. ...
  4. Stocks. ...
  5. Cryptocurrency.
Nov 22, 2023

How much will I have if I invest $500 a month for 10 years? ›

What happens when you invest $500 a month
Rate of return10 years30 years
4%$72,000$336,500
6%$79,000$474,300
8%$86,900$679,700
10%$95,600$987,000
Nov 15, 2023

Is $500 a month in a 401k good? ›

If you start saving $500 a month for your retirement fund at the age of 30, you'll still be setting yourself up for greater financial stability when retirement arrives. By stashing away that much each month, you can expect to accumulate around $400,000 by the time you reach 60.

Is $500 worth investing? ›

Money for a long-term goal, such as retirement, should be invested. Time allows your money to grow and bounce back from short-term market fluctuations. The potential payoff: $500 invested at a 10% return for 30 years could grow to around $10,000 before inflation, 20 times your initial investment.

How do I flip $500? ›

Some of the top ways to flip $500 include:
  1. Buy and rent out assets.
  2. Invest in real estate.
  3. Thrift store flipping.
  4. Start a blog.
  5. Sell collectibles.
  6. Flea market flipping.
  7. Dividend stocks.
  8. Domain flipping.
May 24, 2024

How can I make $50 a day passive income? ›

Platforms like Upwork, Fiverr, and Freelancer allow you to offer services such as writing, graphic design, programming, or virtual assistance. Spend a few hours each day completing gigs, and you can easily make $50 or more.

How to turn $5,000 into passive income? ›

Dividend stocks are shares in companies that regularly pay investors a portion of their earnings and can be a profitable way to generate an annual passive income. By investing $5,000 across five different companies that offer higher-yielding dividends, you can earn more than $300 a year, according to Motley Fool.

How to invest $500 dollars for quick return? ›

This could include stocks, bonds or alternative investments, among others.
  1. Investing In Stocks. To get started, you don't have to spend $500 on one stock. ...
  2. Investing In Bonds. ...
  3. High-Yield Savings Account. ...
  4. Certificate of Deposit (CD)
  5. Commission-Free ETFs. ...
  6. Mutual Funds. ...
  7. An IRA or Roth IRA.
Mar 19, 2023

What is the next big thing to invest in? ›

The tech space is always worth watching when it comes to seeking out the next big thing in investing. Right now it seems that artificial intelligence (AI) is driving that bus and will be for the foreseeable future.

How to flip 1k to 10k? ›

Decide on if you want passive or active income and then dive into our list of ways to flip $1,000 into $10,000!
  1. Retail Arbitrage.
  2. Invest In Real Estate.
  3. Invest In Stocks & ETFs.
  4. Start A Side Hustle.
  5. Start An Online Business.
  6. Invest In Alternative Assets.
  7. Learn A New Skill.
  8. Try Peer-to-Peer Lending.
May 24, 2024

What is the #1 way to accumulate wealth? ›

While get-rich-quick schemes sometimes may be enticing, the tried-and-true way to build wealth is through regular saving and investing—and patiently allowing that money to grow over time. It's fine to start small. The important thing is to start and to start early. Earn money and then save and invest it smartly.

What builds wealth the fastest? ›

Here are a few tools that make wealth creation easier:
  • Opt for an automatic savings program.
  • Take advantage of your company's 401(k) retirement plan.
  • Get checking accounts with better rates and less ATM use and transaction fees.
  • Explore money market funds.
  • Try out Certificates of Deposits (CDs)
  • Invest in stocks.

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