Small Investment Ideas for $500, $1,000 & $5,000

What are the best small investment ideas to invest $500, $1,000 $5,000 or a small amount of money?

If I was going by what the SEC wanted me to tell you, then I would say, “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).

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 less than the value, then that’s probably a good investment.

The best way to invest $1,000, $500, or $5,000 is the same basic investing strategy as it is with $10,000,000.

Investing is always investing.

How to Invest $500

small investment ideas how to invest 500 1000 5000

(Unfortunately, the single, $500 bill will be hard to come by now)

Are individual stocks the best way to Invest $500?  When you’re thinking about how to invest $500 you need to consider individual stocks. $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 $1.2 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.

compound-interest-with-small-amounts-of-money

(This screenshot from my free retirement calculator shows how much you’d have if you invested $500 using Rule #1)

What if You Invest 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 more or finding a way to get a much higher rate of return than you can with those options.

If all you have is $500, then what you really have going for you is that you can take some chances. 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.

How to Invest $1,000

Charlie Munger says that there are four things you’ve got to focus on when you invest your $1,000 or any amount of money.

charlie-munger

(Warren Buffett’s partner, Charlie Munger)

Number one, be sure you’re capable of understanding the business that you’re getting into.

Number two, be sure that this business has this thing that we call a moat. Something deeply embedded in it that protects them from competition.

Number three, make sure that the management team are people who share your values, have integrity, are talented.

And finally, you have to buy it on sale. We call that a margin of safety purchase price.

Investing isn’t about jumping in wherever with $1,000. It’s not about saving more to jump in with. It’s about finding something that you love and you understand to buy. Learning to invest takes a bit of time, but the rewards are well worth it.

The key thing to understand is that we make money by buying wonderful businesses and buying them on sale. We make the money when we’re certain that we have what we think we have.

Shoot for 15% Returns on Your $1,000

A great rate of return would be 15% a year. If you’re starting with a small amount of money and making 15% you’re doing good.

It’s really not about the amount you’re starting with, it’s about the strategy you’re using that going to continue to grow that pile over time.

Here’s a short video that answers more questions about small investing.

Bottom Line: “Risk comes from not knowing what you are doing.” – Warren Buffett

How to Invest $5,000

So, you’ve saved $5,000 dollars. You have a lot of options, depending on your savings goals.

I’ll tell you right now, that no matter what you read, everyone is going to tell something different to do with that $5,000 dollars. I’m going to give you what I think is the best advice for how to invest $5,000.

Here is what I think is going to help you out the most in the long run, and hopefully the $5,000 is just a start to a rich future!

Put Your $5,000 into a Roth IRA

First, consider investing in a Roth IRA. A roth is a long-term account in which you pay taxes on your money before you invest it. They’ve become great investment vehicles for investors who are just starting out.

Since you pay taxes upfront you won’t have to worry about what the tax rate is by the time you actually retire, because you’ll be paid up. All that money is yours now.

Establish an Emergency Fund

Second, make sure you have a “rainy day fund” or “emergency fund” set aside for unexpected financial difficulties.

Most people will say that you should have an emergency fund of money that you’ll be able to live off of for 3-6 months. I say that you should do what feels right and comfortable for you.

Consider Investing Your $5,000 in an Index

Third, if you don’t want to do any work or research, but you still want to make a return in the stock market, consider investing in an index, like the S&P 500 or the Russell 2000.

Most people recommend investing in mutual funds. But, having someone else manage your money is a recipe for high fees, low-returns, and low retirement. If you put the money into an index, you won’t incur management fees, and indexes have an OK track record over time.

Invest Your $5,000 into Individual Stocks

Fourth, you can consider investing in individual stocks. This is, in my opinion, the best option you can take with your money.  If you want to make returns that you deserve. Returns that you can make with a relatively low amount of effort, consider learning to invest on your own.

Look at people like Warren Buffett and follow what they’ve been doing for the past 30 years. You can get successfully get 15% returns or with a little bit of work.

One of the best parts about doing it on your own is that you call the shots.

You decide where you put your money. If you hate smoking, you’re not forced to invest in a company that manufactures cigarettes. You know what you love and you get to put your money where it counts.

That’s the best way to invest $5,000.

Warren Buffett’s First Stock

Remember, Warren Buffett started with a small amount of money, and he 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 to invest is a small amount.

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 more about investing and how to invest safely and successfully, click the button below to sign up for my free Transformational Investing Webinar.

webinar-blog-banner

About Phil Town – Phil Town is an investment advisor, hedge fund manager, two-time NY Times best-selling author, ex-Grand Canyon river guide and a former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence. You can follow him on google+, facebook, and twitter.

  • Albert Evans

    I don’t have the luxury of 30 years to invest and I am intrigued by what I have learned about Warren Buffett’s approach to investing and your own story. Your definition of broke is scary for it lands close to me. I want to invest with good sense and need some guidance. What can you recommend for Canadians in the metro Toronto area?

    • Hey Albert.
      The great part about Rule#1 investing is it works everywhere. We have RULERS all over the world. I personally have close friends and RULERS in the Toronto area. So, if you can give us some specifics on where you are in your investing, we can get you in the correct direction.

      You can also contact ruleoneinvesting.com or apply for the next Rule#1 workshop. Both are on this very page.

      Hope this helps and happy investing

  • Elaine Zimmerman

    All I have is $500 to invest…Husband died, had to get a job, raised 3 kids on my own, and have very little for my future now at 58. Not crying here, but very concerned. Can’t work Part-time since I already work 50 hours and take care of my Dad with Alzheimers. Pension from work won’t be enough plus SS to survive someday. What do you recommend for me?

    • Great question Elaine.
      Have you attended the TI workshop?

      Yea, I know, I answered your question with a question-In finance that’s what we do.

      With SS & your pension, obviously you need to fill the gap. Without knowing how much you need, let’s work with the $500. At a 15% CAGR, this will double in a little less than 5 yrs. Giving you $1000 at age 63. Now, what should you invest in. For starters, Your father has Alzheimers-my condolences. I have many friends with this one and it is devastating. There are some bio-tec firms doing a lot of R&D in this space. Have you done the 3-circles exercise. Let me know which fields you are most comfortable in and I or someone else can work with you on getting you where you need to be and staying there.

      Hope this helps

    • April Kowalsky

      I totally understand. I am 47, divorced 9 years, put my youngest thru college and broke myself. Have to start my life over again and will need to get a second job too soon. Sad.

      • Hi April.
        Being divorced for 9 yrs and covering college expenses are great achievements. Many are letting their children to put themselves through college. Maybe you can go into business with your youngest? Lot’s of possibilities. Just pay yourself first.

        Have you attended the TI workshop? Let us know how we can work together on enjoying your lifestyle.

  • fastrivers2

    I think the most valuable piece of this post that I have learned in my investing life is to save money in order to invest. Either get a second job, work extra hours, and/or be frugal.

    In our society it is far too common to purchase the nicer car, the better out-to-eat meal, etc. I am guilty as anyone and have learned my lesson. They only value most material items possess are negative returns for repair/maintenance. Because of my failures with saving money, I have had to pull money out of investments to pay for necessities. Had I done a better job of being thrifty, those investments in some cases would’ve quadrupled and in many cases doubled.

    Warren Buffett still lives in the $31K house he purchased back in 1958 and is known to be extremely frugal. Many millionaires are extremely wise with their money.

  • Garrett Woolley

    Rulers, (Garret here…long post…important info…please read when you have time…I’ve been working on summarizing these thoughts for awhile and pulling out my notes…and still more to say later)

    Did you know that the stated goal of the US Government is to confiscate at least half your wealth over a period of 25 years? If you were robbed of half of everything you owned three times in your life would you think that were an injustice?

    Don’t believe me, do you? The Federal Reserve’s stated goal is at LEAST 2% inflation. They’re doing pretty good at that goal. You can go to this website to see for yourself – it’s from the United States Department of Labor and their inflation calculator. http://www.bls.gov/data/inflation_calculator.htm

    According to the calculator, 28 years ago in 1988 you could have bought a luxury sports car for $50,000 and today that car would cost you over $100,000.

    Today we are witnessing a severe challenge to traditional and historic beliefs regarding sound monetary principles. I’m far from a scientist but that doesn’t mean I can’t understand the law of gravity. Likewise, I’m not an economist, but I can understand the most basic law of economics. It is this:

    Growth + Productivity =’s Increasing Purchasing Power of Wages.

    What this means is that as we get better at farming, making cars, planes, computers, etc. the price goes down and the value of wages goes up. Go back in time when Henry Ford started making his cars. As production and efficiency increased, prices came down. This is how capitalism works. Capitalism drives down prices and as a result your purchasing power increases. It increases in lock-step with productivity. That’s the miracle of capitalism.

    Remember the most basic law of economics. If you try to break it, it will have severe consequences. Those consequences may not reveal themselves immediately. But as we get further from the law, eventually time ensures us that chaos ensues. It must. It’s a law.

    For all practical purposes, this economic law was in the United States from 1720 to 1971. In 1971 that law was broken by President Nixon when overnight he took the United States off the gold standard and converted us to a 100% fiat monetary system.

    That means instead of little pieces of paper being backed by gold they were backed by nothing. Why? Because we stopped settling our debts in trade with gold and instead printed money giving it to workers and other countries. This action removed any restraint on debt. Politicians could engage in egregious acts of corruption, power and greed to accomplish their personal goals. Destitute foreign leaders could be paid off, propped up, removed, or new ones elected to obtain special favors from nations. Wars could be fought without paying down the debts. Congress could avoid declaring war on a country while allowing any President to deploy soldiers at his bidding without needing congressional approval.

    Over the last 40 years, real wages have done nothing. Why is that when productivity has soared? For example, we have this amazing thing called the “internet”, cars/planes that drive/fly themselves, satellites, gas stations and grocery stores that don’t need employees, pizzas that can get delivered by drones – obviously productivity has soared. But wages have gone down. How do you explain that?

    There’s only one real explanation. The Federal Reserve has printed away all the benefits of those productivity gains and more. As a result, the only people who have gotten wealthy in the last 40 years (in the United States) are people who owned assets such as stocks, bonds and real estate. As a result the wealth gap is soaring – and now someone like Bernie Sanders who promotes his version of democratic socialism is in a position to get elected as President of the United States. History tells us that enormous wealth gaps cause people to revolt.

    Scary as all this is, we’ve officially spread this disease around the globe. We’ve come to the point where the only way to get the paper monetary system to work is to pay NEGATIVE interest rates – Denmark, Sweden, Switzerland, Europe and finally Japan. The trend has been to increase the rate at which now major economies like Japan (world’s 3rd largest) are going NIRP (Negative Interest Rate Policies)

    Are global central bankers out of their minds? Does this make any sense to you? It’s the complete opposite of capitalism. 50 years from now people will write books and ask “How was this even possible to feed to the people?” It will be as famous as the Tulip bubble. It makes absolutely no sense. It’s so insane that it can’t even work. It’s the last ditch effort of a failed global fiat money printing fiasco.

    In 1720, England outlawed paper money in the United States. Bullion was the only way to have money and the Bank of England held gold. From 1720 to 1971 this system worked for 251 years. It’s taken about 44 years of absolute, pure 100% fiat money to fail. This is just a dot in history. The global fiat printing experiment didn’t work. And its finally revealing itself with its last act ending in negative interest rates, a war on cash, and cash withdraws.

    Listen, if you can’t get your cash out of a bank, then ask yourself, “Whose money is it then?” When governments around the world freeze the amount of cash you can withdraw and the amount you have to report taking (United States, Greece, France, etc…) who are they protecting? Are they protecting you or their fragile institution?

    Did you know that your “money” is loaned out at about 8 to 1? If just 10% of the US population tried to get their money out of a bank it would collapse the entire financial system overnight. If negative interest rates come to roost in the United States as they have in Europe and Japan, do you think that may have unintended consequences around the globe?

    You do understand what a negative interest rate is, right? You’re loaning out your money and locking in a guaranteed loss. Does that make any sense in any part of your brain that you would do that?

    Suppose you were the Chief Financial Officer of a large European Insurer. Where do you go for low risk investments to ensure your clients can be paid in the event of a claim if your country is hosting negative interest rate policies? Tell me, please. What do you do? Where do you go? Money has to flow somewhere. What about billion dollar Sovereign Wealth Funds? Banks? Where are they going to put their money? You can’t put it into bonds…they are a guaranteed loss. The stock market is too risky. Real Estate isn’t liquid. What are you going to do? These big insures, banks, etc would all be bankrupt in 10 years.

    They have to choose.

    1) Are they going to lock in guaranteed losses and give it to Switzerland?

    2) Can they grow the portfolio at sub 2% returns from US Treasury?

    Here’s what’s happening. Here’s where the money is flowing. Money is flowing out of US Treasuries and into Gold. Would you rather own paper or Gold if paper money is giving you a negative interest rate? Gold isn’t being traded like a commodity. It’s being traded and treated exactly how it should be – as a hedge against failed economic policies and currencies. Gold is money. It always has been. That’s why the global central banks own it. That’s why China has been buying every gold mine it can. That’s why Russia has been buying gold in record amounts too. That’s why the IMF has gold. That’s why the US Treasury has 261,498,926.23 ounces. Check for yourself – It’s on their website. https://www.fiscal.treasury.gov/fsreports/rpt/goldRpt/current_report.htm

    Billions are going to be flowing into gold. And it’s just starting. There are 8 Trillion dollars in Sovereign Bonds that are currently locked into negative yields. That’s 20% of the worlds GDP. 40% of that is in Europe. Imagine what would happen when those bonds expire. Where are you going to put your money then? Are you going to lock it into another negative interest rate? Ask yourself what would happen if hypothetically $8 Trillion dollars flowed into gold. Do you think the price would go up, down or stay the same? It would go up if anyone is still reading this.

    This represents the collapse of the fiat money system. And by collapse, I don’t mean an end-of-world scenario. I mean our current system is replaced and repriced with something else. The United States spends $800 Billion more than it earns. You all know the egregious debts our country has amassed in the last 10 years. It’s not an exaggeration to write that 100% of fiat paper money systems have collapsed. This one will too. After more than 44 years of pure fiat money, we are in the last innings. As confidence erodes in central banking policies and their ability to stimulate the economy with more negative interest rate policies and more debt, gold will be the only safe haven.

    I want you to consider some more anecdotal evidence whereby the richest and most elite financiers know something is changing.

    John Thornton retired from Goldman Sachs with $207 Million dollars in Goldman stock. In his last four years at Goldman, he earned $40 Million dollars. Why did John Thornton leave Goldman in 2013? Was it because he wanted to start his own banking firm? Did he leave for JP Morgan? John was in line to be the next president of Goldman. He didn’t want to wait any longer. He was a partner. He left all that…to do what? Retire? No. He left Goldman to become the CEO of the world’s largest gold mine, Barrick Gold and they gave him $17 million as a sign on bonus. In 2014 he earned $12.9 Million.

    How is it that one of the wealthiest men in America working for the largest and most famous bank in the world leaves Goldman to obtain a position digging for that “barbarous relic” known as gold? Do you see something here? You have to be oblivious to miss that the times they are a changing! Do you think it’s highly possible that someone knows something you don’t know about the future of our existing monetary fiat policy?

    I have more to share about what I’ve been studying for awhile now. It’s 1:00am and best I call it a day. If I have time tomorrow, I’m going to write up some more information to share and build my case for hedging a portion of your portfolio in some gold allocations.

    To Your Wealth!
    Garrett

    • Philip Reynolds

      I read this whole post, and I have thought about the topics discussed as well…it is quite a scary thought knowing how terrible the monetary system is…thanks for sharing the knowledge with others that are willing to read and think.

      Respectfully,

      Philip

    • Stone Grips

      Very informative , i live to learn more from someone else perspective .wish investing was as easy as stumbling across a good post.

    • Interesting take. Garrett, start your own blog. Let me know if you’d like help doing it.

      I don’t understand this stuff much but this is part of why I am investing in real estate: it’s simple. Real estate—especially on the coast of southern California where I am investing—is a limited resource. Population is increasing here and density is being throttled by regulation, so naturally prices reliably go up.

      Another threat to fiat currencies that I see is blockchain technology. Blockchain facilitates transaction in a decentralized manner that is extremely difficult to hack, game, or manipulate. It makes transactions and verifications of transfer of property essentially free. Fiat currencies can move to blockchains but may not fast enough. Blockchain tech can obviate the need for so many financial intermediaries: first on the chopping block I think is title insurance, but banks are not far behind. Everyone will be able to lend money to everyone else in a scalable, collaborative (think crowdfunding) manner. Corporations will exist on blockchains with algorithmic bylaws. You will be able to invest directly with no need for a broker or even a stock exchange.

      However it comes, disruption will seem to come out of nowhere and happen all at once like a tsunami that has been travelling for miles before it hits land. Not many companies will survive the next 30 years through all the radical disruption we will see. Invest wisely.

    • Keith Cooper

      Amazing that someone gets it so clearly. The only problem is that most of us don’t have anyway to do anything about it. With gold being over $1,000, that is way too much for the average American to purchase in any amount that would sustain him through the financial apocalypse for even 5 years let alone if you have 20+ left on the planet. I just don’t want to be in America when it happens. Maybe Thailand.

    • Gary

      Garrett – Do you follow/read Jim Rickards? I tend to read/listen to anything he has to say which is consistent with your thoughts above. It will be interesting to see what happens in the next year or two.
      Good post. Enjoy the info.

      Thanks. – Gary

      • Garrett Woolley

        Hi Gary!
        I saw your comment automatically got forwarded to my personal email. I’ve been off Phil’s blog for quite awhile now as we’ve been enjoying a different phase in our lives as “empty nesters” and appear to have our daughter’s college expenses all paid up – (two years early… yeah!!). We’re not retired, but we have a very blessed lifestyle and each year I’ve been working less and less during the summer / fall as we maintain a lifestyle that affords us more experiences and less of those “shiny things” that seem to keep everyone working harder!

        I’ve read most of Rickard’s stuff for educational reasons but never necessarily followed his investment advice/recommendations. I did subscribe to his “Strategic Intelligence” monthly newsletter for over a year and again I found it very educational but never worth following his investment advice.

        Our retirement/financial goals are all reasonable and we’re on track for a comfortable retirement. Perhaps more important than that is we’ve been able to “enjoy the journey” and do things along the way that have kept us smiling all along.

        To Your Wealth!
        Garrett

        • Hey Garrett.
          U still in FL enjoying the sunshine. I’m told they’re gonna open a Dairy Queen not far from me in Charleston, SC. Life just keeps getting better & better.

          On recent books:
          1. Smarter Faster Better: The Transformative Power of Real Productivity by Charles Duhigg

          2. Irresistible: The Rise of Addictive Technology and the Business of Keeping Us Hooked by Adam Alter

          3. The Age of Cryptocurrency: How Bitcoin and the Blockchain Are Challenging the Global Economic Order by Paul Vigna and Michael J. Casey

          As you know, these areas are not my strengths. So, they really enhanced my latticework of mental models.

          Instead of wrestling grizzlies this winter why not huddle around the fireplace with some books?

          Cheers from the South

          • Garrett Woolley

            Howdy Brad! We’re enjoying Montana and it appears today we may have a break from all the smoke/haze from various forest fires around Washington, Idaho and Montana.

            Just mailed another check on Saturday for some additional real estate investments that include some apartments, a storage facility and some promissory notes all wrapped and diversified in the investment. I’m keeping about half the retirement portfolio in hard real estate assets and half in the stock market. We’re members of a really exceptional real estate partnership firm which has been performing exceedingly well over 25 years.

            To Your Wealth …and I’ll look forward to the suggested reading list!

            Garrett

  • bump513

    I would advise someone in this position: first priority is fix the lifestyle decisions that result in you only having $500 to invest and change anything you have control over.

    • Garrett Woolley

      Totally agree with that, Bump513!

      To Your Wealth!
      Garrett

      • bump513

        Thanks Garrett.

    • Liam Moloney

      To be fair, this information is most valuable for young people like me. Who can truly afford to lose money.

      • bump513

        That’s great you’re interested in investing at a young age, Liam. If you’re under 30 you’re in perfect position to sock away cash and take advantage of compounding through time. I personally think many roads to wealth are open to a young person with time on their side because it’s the time itself that’s going to work hardest of all for you (Compounding). Start building your pile!

      • Hey Liam.
        You bring up a great point about younger folks can more afford to lose money. In a RULE #1 only world (I’m being optimistic), everyone will be able to enjoy their lifestyles an any age. A utopian philosophy-perhaps. In my opinion, this is a win-win for all ages. At no age should anyone be told they must spend more than they make or succumb to a secular culture of entitlements via wealth redistribution.

        It’s not the years in life, rather the life in years that make the difference

        • Liam Moloney

          I love that man, the life in years. I like taking mental note of cool quotes like that.
          I definitely am feeling that entitlement culture around people my age and even much older. Many of these young people are career students and haven’t tested their ideas and selves in the market. Ideas like a “Living Wage” and “Wage Slavery” are batted around with little thought. I think another big variable that makes investing intimidating to people my age is that they chronically have no savings. Having talked to coworkers about this I think I’ve teased out that the problem is they view lifestyle as being primary, and then they save the remainder. Pardon my french but that’s ass backwards. You have to save, have a financial strategy for different time-frames, and then determine your lifestyle

    • Joe N.

      We used to call that living within your means (and maybe a little bit lower). I’ve got 2 kids and 1 doesn’t spend at all and is patient with purchases, but tends to spend money on little things like going out with friends (but isn’t too frequent or extravagant).

      My other wouldn’t save at all if we weren’t watching his spending habits. Each one knows the drill about the questions we’ll ask when making a big purchase.

      Can you afford to do this?
      How will you feel about your purchase 3-6 months from now?
      How long will it take you to recover the amount spent?
      Do you have anything big (more expensive) that you want to buy in the future?

      Like most things, saving is a habit that is based on recognizing your own thoughts and actions and there are plenty of resources out there to help you.

      Stay Rational

      -Joe