If investing feels like a rich person’s game, it’s not your imagination: There are plenty of investments that cater to the wealthy.
But that doesn’t mean you have to store your money in your sock drawer, or settle for the below-1% interest rates that most savings accounts are still paying. There are plenty of ways to invest smaller amounts like $500.
After all, regularly investing those small chunks over a long time horizon just might be the single best way to build wealth. And with brokers and robo-advisors requiring low minimums, it’s possible for anyone to get in on the action. Here’s how.
Decide: hands-on or hands-off?
Did you Google for investing advice because you think $500 isn’t enough money to get it elsewhere? Not so. If what you really want is someone to invest this money for you, you should know about robo-advisors.
Robo-advisors will build an investment portfolio for you, based on information you share like your goals and risk tolerance. They’re one of the best ways to invest a small amount of money. You’ll pay a small management fee for the service, but that fee is typically a percentage of assets under management, which means the amount you pay is tied to your account balance.
Name your goal
Whenever you invest, the goal for your money is key: Money you need in the short-term shouldn’t be invested at all, as you don’t have time to ride out the waves of the market. Best to keep that cash close, in a savings account or money market.
Money for a long-term goal like retirement should be invested — that time is what allows your money to grow, and if you experience short-term market fluctuations, you’ll quickly bounce back.
(Important caveat: Before you do anything with this money, make sure you’re earning any available 401(k) match — matching dollars are free money and a 100% return on your investment — and that you’ve paid down high-interest rate debt, like credit cards.)
Choose an investment account
If you’re not already saving for retirement — or you are, but not enough — the best place for this money is an individual retirement account.
IRAs are specifically designated for retirement, which means you get tax perks for contributing. There are two main kinds: A traditional IRA gives you an upfront tax deduction, but you’ll pay taxes when you take distributions in retirement. With a Roth IRA, you earn no tax benefit today, but you can pull out money in retirement tax-free. Both accounts have rules around contributions and distributions.
You can open an IRA at any online broker or robo-advisor. The process takes less than 15 minutes and can typically be done completely online.
If you’re on track for retirement or this money is earmarked for a different long-term goal, you can open a taxable brokerage account instead. This is an all-purpose account with no special tax breaks, which means the money can be used for any reason and there are no rules around how much you can contribute and when you can take withdrawals.
Invest in commission-free ETFs
With $500, it’s tough to buy enough individual stocks to adequately diversify that money. Diversification is important because it spreads your investment around — when one investment goes down, another might go up, balancing things out.
Enter exchange-traded funds. ETFs are a kind of mutual fund, meaning they allow you to purchase a number of different investments in a single transaction. In the case of ETFs, the investments within the fund are designed to track an index, like the Standard & Poor’s 500. When you buy an S&P 500 ETF, it should closely mirror the performance of the S&P 500.
ETFs are a particularly good choice if you have a small amount of money to invest: They trade through an exchange like a stock; as such, they are purchased for a share price. You could get a few ETFs and be fairly well diversified for $500. Future investments could boost that diversification further.
The Acorns app is a great choice for first-time investors. The app allows users to “invest the change” by linking their credit or debit cards to the app, which rounds up regular purchases and invests the difference into a diversified portfolio of index funds c
The beauty of this system is that it makes investing easy and painless for a first-timer, no matter how much money
While the ability to make small-dollar investments is appealing, the nature of the fee structure means your investing should be frequent. Acorns charges a monthly service fee, which is a small percentage of your account balance. So, if you leave a small lump sum of money in your account over a long period of time, the fee could eat up your balance, even if the market is performing well. Your balance should be large or constantly growing if you want to come out on top, which is easy if you set it and forget it.
Commissions: This is obvious: What’s better than free? Robinhood’s commitment to providing 100% commission-free stock and ETF trades is admirable, and the savings for investors who trade frequently is significant. After all, every dollar you save on commissions and fees is a dollar added to your returns.
Account minimum: Robinhood doesn’t have one, which means investors can get started right away. Of course, in order to invest, you’ll need enough to purchase at least one share of the stock or ETF you have your eye on. But this is a low bar of entry in a sea of online brokers that often require $1,000 or more to open an account.
One note: Like other brokers, Robinhood requires a $2,000 minimum portfolio balance to open a margin account. This is a Financial Industry Regulatory Authority regulation.
Following 2017’s unprecedented gains in bitcoin, Robinhood makes a big splash this year with the introduction of cryptocurrency trading. To do so, you’ll need an account with Robinhood Crypto, which isn’t a broker-dealer. The minimum amount required for orders is $0.10 for bitcoin and $0.01 for ethereum.
2. Stock Market Simulator
The Stock Market Simulator app gives you the ability to try before you buy. Users can play a simulated version of the real U.S. stock market and invest virtual funds without taking on any real risk.
Accounts start with $10,000 and the virtual stock market gets updated 15-20 minutes behind the real U.S. market, meaning you can track your investments in real time. This app shouldn’t be used as a decision-making tool for actual trading, though — it’s just a great way for first-time investors to get their feet wet and learn how the stock market works without losing any actual money.
SigFig is known for its online investment tools that track, manage and optimize existing portfolios, but it also allows users to manage their investments 100 percent through the app. Users just need to sign up, take a risk profile questionnaire, confirm a personalized investment plan and then fund the account. Investments are pulled into a single dashboard and offer a real-time view of every stock, mutual fund, ETF and other investment.
First-time investors can get help optimizing their portfolio with SigFig’s investment advice engine, as well as receive up-to-date market news and stats on relevant companies. The first $10,000 in your portfolio is managed for free, but, unlike some other investing apps, you will only get a three-year overview of your brokerage accounts, even though some investors prefer a 5-or 10-year look back.
4. Motif Explorer
Motif Investing investigates trends and world events that could lead to investment opportunities. Then the company builds portfolios, or motifs, based off related stocks. Some examples include clean tech or companies tied to the housing rebound, which are all current trends.
The site requires a $250 minimum and charges a commission of $9.95 for a portfolio that contains 30 stocks and ETFs. The Motif Explorer app allows users to monitor motif performance, find new ideas and review performance charts. And if you aren’t a Motif customer, you can still use the app to create lists of favorites and get more details about any investing ideas you’re interested in. This system might not be best for large investments or retirement portfolios, but Motif makes small-time investing fun and relevant — it’s a great way to introduce new investors to the market.
5. Yahoo! Finance
Taking a cue from its mega-popular iOS weather app, the Yahoo! Finance app is designed for a beautiful, personalized user experience. In fact, the design is so sleek that fans of this app compare it to iOS 7’s native Stocks app. The Yahoo! Finance app allows users to sync portfolios and quotes across multiple devices, tracking stocks, currencies, commodities and more. The interface is ideal for conducting a quick stock check and the push notifications allow you to stay current on breaking news so you can make informed decisions on the companies you invest in.