Got $500? Here Are a Few Options if You’re New to Investing

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A $500 investment could go far over time. Read on to see where to put your money. 

Many brokerage accounts today don’t impose an investment minimum to open an account. So technically, you could open a new account with $40 and start putting your money to work. You don’t need thousands of dollars to begin investing.

But what if you have $500 to work with, and you don’t expect to have access to more cash than that for quite some time? While $500 isn’t a negligible sum, it’s hardly a fortune.

The good news is that you can do quite well for yourself with $500 if you invest your money in a savvy manner. Here are three options worth looking at, especially if you’re new to investing.

1. Buy shares of an S&P 500 ETF

ETFs, or exchange-traded funds, allow you to buy a whole bunch of different stocks with a single investment. They’re a good bet when you’re a new investor who’s not quite sure how to research stocks individually.

There are different types of ETFs you can put money into. Many ETFs are sector-specific so you can, for example, buy shares of an energy ETF or healthcare ETF. But a good bet when you’re starting out and are limited to $500 is to buy shares of an S&P 500 ETF. An ETF like that will basically aim to match the performance of the S&P 500 index.

Meanwhile, that index, which is generally used as a benchmark for the stock market’s performance as a whole, has delivered an average annual 10% return over the past 50 years. So if you were to invest $500 in an S&P 500 ETF today, sit back, and do nothing for 30 years, you might grow that $500 into more than $8,700.

2. Buy fractional shares of a few different stocks

Building a diversified portfolio is important. But that’s a tricky thing to do when you only have $500 to invest with. Fractional shares, however, can come to your rescue.

Many brokerages today allow investors to load up on fractional shares, and what you’re doing here is buying a portion of a share of various stocks instead of full shares. For example, it may be that a given company’s share price is $250. Buying a full share would mean that half of your portfolio is invested in a single business, and that’s not great.

With fractional shares, you could, in this situation, buy $50 worth of that company and $50 worth of nine others. That way, you have 10 different stocks in your portfolio.

3. Buy shares of dividend stocks and reinvest as those payments come in

It’s more than possible to buy a variety of stocks with $500. And one thing you may want to look out for is whether the stocks you’re interested in pay dividends.

It’s not a good idea to buy stocks solely because they pay a generous dividend. But if you find quality businesses you’re interested in investing in and they happen to pay dividends, you can set yourself up to grow your portfolio over time.

Most brokerages allow you to set up an automatic investment plan for your dividends so that when they hit your account, they get reinvested immediately. It’s a great way to keep investing when you don’t have such easy access to extra money.

You should also know that you can buy dividend stocks on a fractional basis. In that case, your dividend payments will be proportional to the amount of stock you own. If a given company is paying a $4 dividend per share, for example, and you own a quarter share, then you’d get a $1 dividend payment.

Many people who eventually grow large investment portfolios have to start small. The good news is that you can do a lot of great things with $500, and the sooner you start, the better.

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