Start Building Wealth With Just $500 (2024)

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.

If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

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

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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