How to Invest $500 Wisely: 10 Best Ways to Maximize Funds

It might seem like a lot to invest $500 at first, but it’s a powerful stepping stone in the investment world.

Investing isn’t just about growing your wealth; it’s an important step towards securing your retirement and building lasting wealth.

Whether you’re a beginner looking to get into investing or a pro aiming to diversify your portfolio, understanding how to invest $500 can make a big difference in your financial journey.

From tapping into commission-free ETFs to investing in a Roth IRA or 401k to investing in an S&P 500 security, it’s important to make the best decisions about your investment choices.

Key Takeaways

Grow Your Money with $500: Dive into cool options like real estate crowdfunding, robo-advisors, and index funds.
Spread Your Investments Out: Diversifying your investments is key to playing it safe. Don’t put all your eggs in one basket, and steer clear of the temptation of quick, risky wins.
Make Compound Interest Work for You: Regularly putting away $500 can unlock the power of compound interest. It’s a smart and safer route to growing your money over time.
Pick Trustworthy Platforms: Picking Fundrise for real estate or Robinhood for stocks is a sure way to invest with trusted investment apps.

How to Invest $500 Wisely: 10 Best Ways to Maximize Funds

Numerous options exist for investing your $500. From the stock market to real estate, robo-advisors to index funds, the opportunities are plentiful.

Don’t worry if these terms seem a little alien now; we’re going to break each one down so you’re equipped with the knowledge you need to start investing like a pro.

1. Invest In Real Estate (REITs)

If you have $500, investing is your best bet for your money to make money. And real estate is a popular and lucrative asset class, but it usually requires a lot of capital and expertise.

You can earn income from rent or appreciation, depending on the project- but the best part is you don’t need to buy a home or be a landlord!

REITS owns, operates, or finances income-producing real estate, such as apartments, malls, hotels, or warehouses.

They trade on stock exchanges like any other company, and they pay dividends to their shareholders. 

Using crowdfunding platforms like Fundrise, you can invest in residential and commercial projects with other investors. 

With crowdfunding platforms, you can choose from different types of property, such as residential, commercial, or industrial, and different levels of risk and return.

And Fundrise starts at only $10 for fractional shares, so your $500 can be put some eggs into a lot of baskets!

See why else I think Fundrise is the best for investing with my in-depth Fundrise Review.

2. Use A Robo-Advisor

Investing doesn’t have to be intimidating. Imagine having a financial advisor who’s available 24/7, doesn’t charge hefty fees, and tailors your investment strategy just for you.

That’s where robo-advisors come in.

Think of a robo-advisor as your digital investment co-pilot. They use sophisticated algorithms to create personalized portfolios based on your unique situation.

With a robo-advisor, you choose your risk and investing preferences, deposit your initial investment, and then let the algorithm do the rest.

No daily monitoring, no stress- just watch your money grow over time!

Betterment is one of the most popular robo-advisors that makes investing $500 straightforward and stress-free with a $4 monthly fee or an annual fee of just 0.25%.

Check out why people think it’s one of the top Robo-advisors in my honest Betterment Review.

3. Diversify Your Assets

Diversifying your investments is a smart strategy that involves spreading your $500 monthly investment across various asset classes to help manage risk in your investment account.

Here are some other ways you can create a diversified investment portfolio with your brokerage account.

Individual Stocks: By selecting stocks from different sectors, you’re leveraging market opportunities while mitigating sector-specific risks.
Mutual Fund: Mutual funds are a practical choice for those looking for funds managed by a fund manager.
Bonds: These fixed-income securities offer regular interest payments, making them less risky compared to stocks with steady income.
Cash and Cash Equivalents: Instruments such as money market funds, certificates of deposit (CDs), and short-term government bonds offer liquidity and safety.
ETFs (Exchange-Traded Funds): ETFs trade on exchanges similar to stocks, offering diversification across various assets with the flexibility of stock trading.

Consulting a financial advisor can give you tailored advice, ensuring your diversified portfolio strategy aligns with your circumstances and investment objectives.

4. Invest In Fractional Shares

With fractional shares, you can build a diversified portfolio without needing thousands of dollars. It’s like having a buffet of stocks where you can sample a little bit of everything.

The shares are like bite-sized portions of a company’s stock. Instead of buying whole shares, you can invest based on a dollar amount.

With just $500, you can spread your investment across multiple companies. Imagine owning a slice of Amazon, Google, and Tesla, all while keeping your investment manageable.

To get started, look for online brokerages that offer fractional trading. On platforms like M1 Finance, new investors can buy fractional shares with ease and get consistent investing in multiple companies.

5. Get A High-Yield Savings Account

When you save $500 in a high-yield savings account, you’re making a smart choice because these accounts offer higher interest rates than regular ones.

By putting your monthly savings into a high-yield account, you earn more over time, thanks to better interest rates.

When choosing an account, aim for one with the highest interest rate but with low or no fees to maximize your earnings like the ones at Chime.

They offer 2% on your funds- meaning every month, you earn $10+ just for letting your $500 sit there- and the more you save every month, the more cash you get!

6. Invest In Retirement

When you start putting money into a retirement account, you’re essentially setting aside funds that will grow over time, thanks to interest and investment returns.

There are different ways to invest $500 in retirement accounts, like a 401 k account, which is often offered by employers, and IRAs (Individual Retirement Accounts), which you can set up on your own.

Each type of retirement account, like a Roth IRA or Traditional IRA, has its own rules about how much contributions you can make each year and when you can withdraw the money.

Generally, these accounts come with tax advantages that can help you save more in the long run.

The earlier you begin investing in a retirement account, the better.

Even small amounts put into a retirement account can grow significantly over time with compound interest, so $500 could be a lot more by the time you retire.

7. Get Into Index Funds

Many investors choose to put their money into a fund that tracks specific indexes, like the S&P 500.

These funds offer a way to invest in a broad range of companies, making it simpler to diversify your portfolio without having to buy shares of each company individually.

Index funds are popular for their low fees and the fact that they mimic the performance of the indexes they track.

To start investing in these funds, many brokers offer the option to open a brokerage account. You can also invest through a Roth IRA, Traditional IRA, or a 401 k account through an employer.

These accounts come with different tax benefits, which can help grow your wealth over time.

8. Invest In Tangible Assets

Investing in tangible assets means putting your money into physical things that have value. This class includes real estate, gold, artwork, and collectibles.

People invest in tangible assets for several reasons. They can provide a way to protect your money against inflation, as their value might increase when the cost of living goes up.

Also, some tangible assets, like rental properties, can generate income through rent.

Buying tangible assets often requires more upfront investment than other types of investments. For example, purchasing property requires a significant amount of money for a down payment.

But if you buy collectibles for $500 or less now and get that money plus profit a bit quicker than properties.

9. Consider Peer Lending

Peer lending means lending your money directly to individuals or businesses through online platforms.

Instead of going through a traditional bank, borrowers get funds from regular people looking to invest. As an investor, you earn money back with interest as the borrower repays the loan.

Peer lending platforms let you choose who you lend to and how much. You can see the purpose of the loan, the repayment period, and the interest rate before deciding.

Investing with peer-to-peer lending can offer higher returns compared to traditional savings accounts or CDs, but it also comes with higher risk.

There’s always the chance that a borrower might not repay the loan, meaning you may not get your money back. It all comes down to the platform you use and the agreement you have.

10. Pay Off Debts

Another strategy that can instantly improve your financial health- paying off debt.

It might not offer the thrill of watching an investment grow, but it provides a guaranteed return by saving you from future interest payments.

When you pay off debt, especially debt like credit card balances, you’re earning a return equal to the interest rate on that debt.

For example, if you’re paying off a credit card with a 20% interest rate, you’re avoiding future interest payments that would have cost you significantly more over time.

Investing Do’s & Don’ts

Investing isn’t just about picking stocks or throwing cash into the latest trend. It’s about smart moves, like knowing when to hold back and when to dive in.

With these handy dos and don’ts, you’ll be on your way to making your investment dreams a reality, whether you’re starting with $500 or more.

Investing Do’s

Start early and invest regularly
Set clear financial goals
Diversify your portfolio
Look for commission-free trading
Understand your risk tolerance
Monitor and rebalance your portfolio
Invest for the long-term
Use tax-advantaged accounts
Seek professional advice when needed

Investing Don’ts

Don’t put all your eggs in one basket
Don’t chase hot tips
Don’t ignore fees
Don’t let emotions drive your decisions
Don’t forget to review and adjust
Don’t overlook tax implications
Don’t expect quick riches

FAQs

How can I make more money from $500?

Making more money from a $500 investment involves a mix of strategy, patience, and, sometimes, a willingness to take calculated risks.

Here are some things you might want to try:

Start a Side Business: Use the $500 as seed money to start a small side business, like selling handmade goods online, starting a dropshipping business, or becoming a freelancer.

Learn a High-Demand Skill: Consider using the money to invest in learning a new skill or improving an existing one, especially if it can increase your earning potential (like coding!).

High-Interest Savings Accounts or CDs: These are a safe way to earn a bit more without risk. Look for the best rates to maximize your returns.

Peer-to-Peer Lending: Platforms that allow you to lend your $500 directly to individuals or small businesses can offer higher returns than traditional savings accounts or CDs.

What are the best investments to invest $500?

Some popular investing options that cater to a variety of goals and risk tolerances are:

Individual stocks
Mutual Funds and ETFs
Index Funds
Bonds
Real Estate Crowdfunding or REITs
High-Yield Savings Accounts or CDs
Robo-Advisors

Before you start to invest, it’s important to research and understand each option’s potential risks and returns.

Consider starting small, especially if you’re exploring more volatile investments like stocks.

Diversifying your investments can also help manage risk. And remember, investing is a marathon, not a sprint; patience and consistency are key to seeing your $500 grow over time.

Is it smart to invest $500 a month?

Yes! Putting away $500 a month is definitely a smart move.

Think of investing as a steady, easy-going way to grow your money, kind of like planting a garden that blooms over time.

Rather than buy things or put the money in a regular savings account, $500 has the potential to double over a year with a diverse portfolio.

Can I double $500 quickly with investments?

It’s tempting to aim for rapid gains through high-risk investments, but it can be a bit of a tightrope walk with risk and reward.

Quick wins can be thrilling, but they’re also risky, and there’s a chance you might end up back at square one if things don’t pay out as you hope.

Investing for the long-term is more about steady growth over time, where you don’t have market dips or losses as much.

By prioritizing consistent contributions and aiming for long-term growth, you’re on a path to building wealth more reliably.

Final Thoughts

Investing $500 might seem like a small step, but it can be the beginning of a big journey toward financial freedom.

Whether you choose to invest in real estate with Fundrise, use a robo-advisor like Betterment, or get into other investment types, deciding to invest is smarter than spending or saving.

Remember, the best investment strategy is the one that aligns with your financial goals, risk tolerance, and investment timeline.

You have a whole list of the best investments to put to use, so diversify your portfolio and see how much your $500 can grow this year!

So why not take that $500 and start investing in your future today?