What’s the best way to invest $1,000, $500, or a small amount of money?
If I was going by what the SEC wanted me to tell you, then I would probably say that investing is risky and you can lose all your money. To that, I would have to add that putting money into things you don’t understand is NOT investing. It’s SPECULATION. This means it’s also gambling.
Frankly, that’s the way most retirement accounts are managed. They are speculating on someone being willing to pay more tomorrow than you paid today. This is likely to be true in the long run, but you have to ask yourself, “How long is the long run?”
Ask yourself what you’re trying to accomplish before you start investing.
If you have enough money and that you don’t need a high rate of return to retire or stay retired… If you love working and aren’t looking to retire early… If a normal 4-6% return will do it… Then you can buy a nice mix of stocks bonds and ETFs and you’ll probably (in the long run) see about that level of return.
But, you should know that in 20 years, it will take a portfolio of $2.5 million to produce a $50,000 a year income for life in today’s buying power.
How are you going to accumulate $2.5 million?
The answer is you can’t at those low rates of return.
That’s why you should consider learning how to invest (real investing, not speculation). You can start here by learning the 4Ms of successful investing.
A Strategy for Making Small Investments
Investing is, in my definition, buying something worth $10 and paying $5 for it. You are pretty certain you’re going to make money almost no matter what happens. That’s investing.
Gambling is paying full price for something and then hoping it goes up. If you’re going to invest a small amount, you first want to consider how much the thing you want to invest in is actually worth. What’s the real value? Then, what’s the price?
If the price is substantially less than the value, then that’s probably a good investment. The basic strategy of investing is the same with $1,000 as it is with $10,000,000.
Investing is investing.
Are Individual Stocks the Best Way to Invest $500?
$500 isn’t much to start with, but it is a start. If you can start with $500 dollars and come up with $500 per year and invest like Warren Buffett, you might have $1.6 million in 30 years with an investment of $15,000.
It’s the power of compounding interest that can make you rich even with almost no money.
What if You Invest $500 in ETFs, Mutual Funds, or Bonds?
If you put the money in ETFs and get the long term historical return of 7%, all you’ll have in 30 years is $51,000.
Same return for mutual funds but remove 1.5% for fees and you’ll end up with $38,000.
Same thing with bonds but worse. If you average 5% in bonds with no fees, you’ll have $35,000. Bonds are the safest, but how safe is a retirement of $35,000?
This is a bit heretical, but if you don’t have much money to invest, you should start thinking about either making and saving a lot more or finding a way to get a much higher rate of return than you can with those options.
How to Invest $500 Dollars
If all you have is $500, then what you really have going for you is that you’re almost broke.
That means you can afford to take more risk to get a lot higher return because if you lose, it’s not a big tragedy. You lost $500.
Go get a part time job washing windows and you can make it back in a month and take another shot. If I were you, I’d try to find the place where I could combine my skills and passions with hard work to make a high return.
For me, it’s the stock market… If only because you get good at it, people will give you more money to invest for them than you can imagine.
Warren Buffett Started With $100
Remember, Warren Buffett started with $100 and turned it into $30 billion. That means that it isn’t about the money you have, it’s about the knowledge you have. That’s good news if all you have is $500. It means there are no real barriers to you getting rich if you’re willing to work hard and learn. If you want to learn how Buffett and all of the best investors invest their money, start by learning the 4Ms.