Many people think that they cannot invest their money, because they are not wealthy enough to do so. In this blog post, I will show you how you can already start investing with only $500 and that every penny matters!
Especially at the beginning, it might be even better to start with a small amount. Investing in stocks, bonds or other asset classes always comes along with a certain risk – I don’t want to make false promises, but you could also lose all your money! Every investor has to be aware of this fact. However, starting with a small amount of money helps you to learn while reducing the risk as far as possible. Here are 4 ways, how you can start investing with only $500:
1. Micro-Savings Apps
If you don’t have enough money to invest in stocks, micro-savings apps are a good option to accumulate savings through purchases. There are several apps, that round up your purchase transactions and put it into a savings account. This helps you to accumulate savings over time. Here are my personal top three apps:
They even have an IRA version, Acorns Later. The process works by what they refer to as “Round Ups”. You make a purchase for, say $9.23, and the app rounds the transaction up to $10. The additional $0.77 goes to savings
Stash is more of a micro-investing app. You link it to your bank account, then make deposits into your Stash account. The minimum initial investment is just $5, and you can make deposits as you like.
Stash is different from Acorns in that they don’t actually manage your money. Instead, they provide you with recommended investments, which you make through your account. Unlike Acorns, Stash not only recommends ETFs, but also individual stocks
Qapital uses round-up methods, similar to Acorns. But they allow you to allocate up to $5 to the account per purchase. You can link your checking account, credit card or even PayPal account.
Qapital also has some unique and innovative ways to help you accumulate money. For example, you can contribute a fixed dollar amount on a regular basis, allocate money from freelance income, or even tie contributions to certain activities, like going to the gym. The idea is to create a savings incentive to do beneficial activities.
Micro-savings apps are a perfect way to get started saving and investing if you have no money at all. But once you have at least $500 saved, you can consider transferring the balances over to other investments in this article.
Robo-advisors are online, fully automated investment management platforms. These platforms handle investing, portfolio management and dividend reinvesting. Some offer even more features to minimize income taxes. One example of a robo-advisor is Hedgeable.
The name “Hedgeable” is a play on “hedge”, as in hedge fund, which is about the size of it. Hedgeable is making sophisticated hedge strategies available to very small investors. You can get started with as little as $1. They use investment strategies designed to protect your portfolio from catastrophic losses, which provides an opportunity to outperform the markets during financial market downturns.
They also have more diverse investments, like private equity, Bitcoin, real estate and commodities. It’s a real opportunity to diversify across multiple asset classes.
3. Set up a Retirement Plan With Your Employer
Many companies offer a 401(k) retirement plan for their employees, and some even offer an incentive for contributing. Some companies provide a matching contribution to a 401(k) plan, which is equal to a percentage of the employee’s salary.
As an example, your salary is $40,000 and your employer offers a 5% matching contribution, he will match your first $2,000 you pay into your 401(k). This means, you get $2,000 for free from your employer! Check out my last blog post to learn more about the different types of retirement plans.
4. Start With a No-Minimum Discount Broker
With a small amount of money, you will need a discount broker to execute your trades as the commission fees are too high at other brokers. No-minimum discount brokers help you to make investments and trades even with $500. Here are two examples:
Fidelity Investments charges only $4.95 per trade for stock trades and leads the industry in order execution quality. It received 5 out of 5 stars in our 2018 Review, and was awarded Best in Class for 12 categories, which makes it the best discount stock brokerage
With flat-fee stock trades at $6.95, Merrill Edge offers lower commission rates than most of its full-service competitors. Not limited to just Bank of America customers, Merrill Edge’s Preferred Rewards program is excellent, offering up to 30 $0 stock trades each month with at least a $50,000 combined balance and up to 100 $0 stock trades each month, with at least a $100,000 combined balance. The Preferred Rewards program has other perks too, such as bonus rewards on credit cards and discounted mortgage rates. Merrill Edge was awarded #1 for Banking Services and 4 stars overall for 2018.
There are many different ways how you can start investing with little money. The most important thing is that you get started. Even if you have a small amount of money, you can let your money work for you. And don’t forget the effect of compound interest! If you achieve a return of 10% on your first $500. You will have $550 in the second year and $605 in the third year. The earlier you start, the more you accumulate!