How to Invest Your First $500

Are you someone who is new to investing that just got a $500 windfall or stimulus and has been saving and you’re wondering where to invest it?

There is certainly no shortage of investment advice out there – perhaps there is actually too much. However, it’s good to know your options when it comes to starting out as a new investor looking to invest a small amount of money.

Today, we will look at some of the best beginner options to invest your first $500.

Quick Ways to Invest $500 – For the First Time:

Start your 401k

If your employer offers a 401k with a company match, sign up for at least get a full match. Lets say the company matched half of 6%, so if you contributed 6% the company would match 3% at end of the year. (Taxed now, untaxed earnings when withdrawn beginning age 59.5) Using Rule of 72 and 10% (In a good Fund, that tracks the market example he used 10.2 % return every seven years (before inflation S&P 500 has returned around 10% historically, between 6-8% accounting for inflation) *Past returns do not guarantee future returns, an example of how compound interest works. This does not include individual contributions to get match and throughout the year or future years. Investing bonuses and unplanned income and employer match are tax-efficient, way to begin accumulating your net worth and wealth over time.

Open a Roth IRA

401k and IRA Individual Retirement Account are a great tax-efficient way to invest for the future. If not able to 401k start a Roth IRA with a max of $6,000 a year is also a great way to start saving for retirement. HSA is also beneficial if you have that option as well. Being young and in a low tax bracket, I personally love Roth IRA. (Look up Rule of 72 how long it takes your money to double divided by interest rate and power of compound interest accumulated over years after dividends reinvested and interest earned)

Checkout Index Funds

Low fee index funds have been exploding in popularity among millennials thanks to movements such as F.I.R.E Financially Independence Retire Early community with index funds such as S&P 500 and Total Stock Market. In the book, “Simple Path to Wealth” JL Collins makes the case for The Total Stock Market Index to track the whole US stock market of around 5000 publicly traded US stocks. Other popular indexes include Dow Jones Industrial Average and Nasdaq

Jack Bogle founder of Vanguard introduced the index fund philosophy of low fee funds that nearly match the market returns. A community calling themselves Bogleheads have long been proponents of his index funds suggestions. 3 fund portfolios and coach potato fund strategies have become popular as a result. Usually consisting of either S&P 500, Total Stock Market, Total Bond, and Total International fund. ETF versions would be VOO, VTI, BND, VXUS. Target Date funds that allocate each year make this strategy even easier for asset allocation. Target-Date Fund for 20-year-old planning to retire at 65 maybe Target Date 2065, 30 years old 2055, etc.

Final Word for New Investors:

Not financial advice, not currently a financial advisor. The main thing with investing is to start and let accumulate over years of growth preferable in retirement or tax efficient account that receives dividends and growth. The stock market has been in a long bull market and eventually market will go into bear market, important to not market as most investors even professional underperform market when attempting to timing market and factoring in commissions and fees. Other ways to invest in education, online courses, self development and yourself. If looking for stock alternatives, you could also consider starting side hustle or freelance/ create your own business.