So you find yourself with an extra $500 and want to learn to invest. These days there are multiple online platforms that give access to types of investments previously unavailable to anyone but the highest-worth individuals.
Here are five of the easiest and most lucrative ways to invest your $500, and to learn how investing works while your money grows.
#1 – Contribute to your employer’s pension plan.
This is number one for a reason, especially if your employer matches contributions. You should contribute at least up to that amount each year to your employer’s pension plan.
Most pension plans give you choices as to how much risk to assume and will offer diversified portfolios categorized as a low, medium, or high risk. In general, the younger you are, the more risk (and perhaps reward!) you can assume. The older you are, you should move your retirement funds into more conservative investments.
#2 – Invest in Exchange-Traded Funds (ETFs)
An ETF is a diversified collection of stocks and/or bonds in a single fund. Similar to mutual funds but with greater returns, ETFs give you broad diversification at low costs. Your $500 is a typical minimum to invest in ETFs online. Look out for commission charges for each transaction (each time you invest) and perhaps plan to contribute quarterly rather than per pay period to reduce costs.
#3 – Invest in a Dividend Reinvestment Plan (DRIP)
You can buy shares of stock online, and arrange to have your dividends automatically invested in additional shares or even fractional shares. This eliminates the need for a broker and therefore the costs of a broker’s commission. Even purchasing a single share of a company you like will get you started.
#4 – Invest in a Real Estate Investment Trust (REIT)
A REIT typically owns and manages commercial real estate, or lends to commercial or residential mortgage borrowers. In this way, small investors can invest in real estate without the attendant risk and overhead.
#5 – Invest in Micro Loans or Peer-to-Peer Lending
There are myriad platforms for small investors to invest in lending, and many serve a public or humanitarian interest such as lending to minority business owners, or lending to small businesses in underserved areas.
Keep in mind that regardless of where you choose to invest, you should plan to tie up your $500 for five years or more to see any return. For this reason, that $500 should be money that you don’t think you’ll need ready access to. You should also plan to add to your investment every pay period, and if you automate this through your bank you will not even miss that money.
Before you act on any of this advice, take a look at your total financial situation. First, if you don’t have an emergency savings fund of 6-8 months’ worth of expenses, use this $500 to start one instead of investing it. Second, if you have any high-interest credit card debt, use your $500 to pay it down or pay it off. No investment exists that will give returns that will match or even come close to what you’ll pay due to a credit card’s rate of interest.
About the Author
Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with Philadelphia bankruptcy attorney David M. Offen.