How to Invest 500 Dollars | Getting Started with the Basics

Want to start investing but don’t think you can? Think again!

Given the high prices of stocks and the relatively high initial investment minimums of many brokerage firms, mutual funds and exchange traded funds (ETFs), you may think you won’t be able to invest in the stock market with $500. But you’d be wrong!

Although your investment options will be limited, you’ll still be able to invest in the stock market and come out with a decent profit.

You just have to be selective about where and how you invest your money.

1. Start With a Microsavings Service for Your Emergency Fund

You don’t have to begin with large amounts when first starting off. In fact, we’ve reviewed the latest trend in fintech, microsavings services. With just a few pennies per purchase you’ll be on your way to creating a nest egg.

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Out of the various microsavings services we recommend, Acorns as the best microsavings service.

Acorns is a somewhat a unique investing app that takes your spare change from every purchase you make. When you buy your favorite chicken burrito at Chipotle for $6.50, Acorns will round up to $7.00 and invest $0.50 from your checking account. Acorns can do this with every purchase you make. As you can imagine, this can start adding up very quickly.

It’s an easy and painless way to start investing with very little money.

Acorns makes the service simple and does the investing heavy lifting for you. The service costs $1 per month when you have under $5,000 and 0.25% per year after that.

We recommend using Acorns as the start of your emergency fund.

To find out more about Acorns, read our review.

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2. Open a Retirement Account With Your Employer

Once you start building a nest egg for that proverbial rainy day, it’s time to get serious with your retirement planning. Even if retirement is more than 30 years away, now is the time to get started since time is on your side.

With the magic of compounding, a little money every month can add up to a lot. Plus, many employers will match up to 3% of your income that you put into your 401(k). So in effect, it’s doubling your money without any effort. Lastly, a 401(k) can take the bite out of your taxes now as the money goes in pre-tax.

Don’t have a retirement account with your employer? If you are one of the 20% of employees for whom your employer doesn’t offer a retirement plan, skip this step and go to step #3.

3. Open an IRA Account With a Robo Advisor

Robo advisors, similar to the microsavings services mentioned above, are an invention of the past five years. We differentiate them by the fact that robo advisors can deposit larger amounts and offer retirement accounts.

If your employer doesn’t offer a retirement plan or if you’re looking to stuff more money into your retirement savings, an IRA with a robo advisor is the way to go.

Out of all of the robo advisors, we recommend Betterment as the best service. The service is cheap, visually shows you your goal in an easy-to-read format and helps plan out the best way to allocate your investments. At younger ages, you want most of your investing in the stock market, because time is on your side and that is historically where you’ll get the highest returns.

There’s no account minimum with Betterment. If you make automatic contributions of $100 or more per month, your fee will be 0.35% of the account balance per year.

Open an IRA Account with Betterment

4. Open With a No-Minimum Discount Broker

With $500 you will need to use a discount broker to execute your trades — full service brokers and their higher commission fees won’t make financial sense. There are many options when it comes to discount brokers, but your relatively small initial investment will limit your options, as many require higher amounts just to open an account.

TD Ameritrade will allow you to open a brokerage account with a minimum of $500. Commissions are $9.99 per trade. That’s not the best commission rate available, but you can switch to a broker with a lower rate when you have more money to invest.

No matter what firm you invest with, be sure to keep your trades to a minimum. At nearly $10 per trade — or even $5 — you can eat up a lot of investment capital in a real hurry if you are an active trader.

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5. Get More Investment Options by Increasing Your $500

If you begin investing with $500 it’s important to think of it as a solid starting point. Once you open an account and begin investing, your next move should be to grow your investment stake.

You should plan to add at least $50 to $100 per month through payroll contributions — you can direct-deposit money into many investment accounts — or some other regular contribution method.

If your initial investment is $500, and you add $100 per month, at the end of the year you will have $1,700 in invested funds — plus investment income earned.

As your investment fund grows, so will your investment options. You will eventually be able to invest in funds with higher initial investment minimums, as well as individual stocks.

And if you plan to be an active trader at some point, having a larger amount of capital to invest will be absolutely essential.

But in the meantime, never allow the fact that you have “only” a few hundred dollars keep you from investing in the stock market.