Smart Ways To Invest $500 Today

If you're looking to invest $500, you're in luck. There are plenty of options for you to grow your money, even if you're new to investing.

One option is to use a robo-advisor, which is an online brokerage account that uses an algorithm to choose investments for you. You can also contribute to a 401(k) or IRA, which offer tax advantages and are specifically designed for retirement. If you want to manage your own portfolio, you can invest in commission-free ETFs or buy fractional shares of stocks.

You could also consider investing in real estate through crowdfunding sites, or paying off any high-interest debt you may have.

Remember, investing is a long-term strategy, and it's important to do your own research before putting your money at risk.

Invest in Amazon, or shares of other companies that cost a lot of money, through fractional shares

If you're looking to invest $500, you might be interested in fractional shares. Fractional shares allow you to invest in high-priced stocks like Amazon without having to purchase a full share, which can be very costly. For example, Amazon's stock price is currently over $3,000 per share, but with fractional shares, you can buy a portion of a share for a much lower price. This way, you can still gain exposure to Amazon's growth and potential gains without needing a large amount of money upfront.

Fractional shares are offered by some brokerage firms, such as Interactive Brokers, and online trading platforms like Stash. These platforms allow you to buy less than one share of a company, making it more accessible for small investors or beginners. For example, instead of buying one full share of Amazon for $3,000, you can buy 0.34 shares for $1,190. This also helps with diversification, as you can invest in a variety of stocks with your $500.

However, there are a few downsides to consider. Fractional shares may have lower liquidity, which means it could be harder to buy or sell them quickly. They may also come with higher costs and have lower returns compared to full shares. Additionally, fractional shares do not come with voting rights, so you won't have a say in the company's decisions.

Before investing in Amazon through fractional shares, it's important to do your research on the company and the brokerage firm you plan to use. Assess your financial situation, goals, and risk tolerance to determine if this investment aligns with your investment strategy. Remember that investing carries risks, and there is always the possibility of losing money.

Buy an index-tracking exchange-traded fund (ETF)

Exchange-traded funds (ETFs) are a great option for investing $500. ETFs are a kind of mutual fund that allows you to purchase multiple different investments in a single transaction. They are traded on an exchange like stocks and offer lower fees and expenses than buying stocks individually.

ETFs are ideal for diversification, as they allow you to invest in a variety of assets, including stocks, bonds, commodities, and currencies. You can find ETFs that track specific indexes, such as the S&P 500, or focus on particular sectors or industries.

When choosing an ETF, consider the fund's expense ratio, which is the cost to operate and manage the fund. ETFs that track an index tend to have lower expenses. You can also look for commission-free ETFs, which many brokers offer.

ETFs are bought and sold through online brokers, traditional broker-dealers, or robo-advisors. You can create and fund a brokerage account to search for and purchase ETFs. Utilize an ETF screening tool to narrow down your options based on criteria such as trading volume, expense ratio, past performance, holdings, and commission costs.

Keep in mind that ETFs are intended for long-term investment, and it's generally recommended to stay invested for at least five years.

Invest in high-quality dividend stocks

Dividend stocks can be a great choice for investors looking for passive income. Dividend stocks are shares of companies that regularly pay investors a portion of the company's earnings. Some pay dividends annually, semi-annually, or quarterly, while others are monthly dividend stocks. The average dividend yield of some of the top dividend stocks is 12.69%.

Dividend stocks can be a good choice for investors looking for regular income. Dividend stocks are shares of companies that make regular distributions to their shareholders, typically in the form of cash payments. Dividend stocks can also be a great way to increase your wealth over the long term.

Dividend stocks can be a great choice for investors seeking passive income or looking to increase their wealth over time. Dividend stocks are shares of companies that pay out regular cash distributions to their shareholders. These distributions are typically made on an annual, semi-annual, or quarterly basis, with some companies even offering monthly dividend payments. The top dividend stocks can provide an average dividend yield of 12.69%.

When considering dividend stocks, it is important to evaluate the dividend yield, which is the percentage of the share price paid out as dividends. A high dividend yield can be attractive, but it is important to assess the sustainability of the payout. A very high dividend yield, usually above 7%, could be a red flag, as it may indicate that the company is paying out dividends from cash reserves rather than profits. Therefore, it is crucial to analyse the dividend coverage ratio, which is calculated by dividing net profits by dividends. A ratio above 1 indicates that the dividend is fully covered by profits.

Additionally, it is beneficial to consider companies with a history of increasing their dividends over time, even during economic downturns. This demonstrates the stability and long-term growth potential of the company. It is also important to assess the overall health of the company by evaluating share price activity, fundamentals, and corporate actions.

• Lowe's: The home improvement giant Lowe's has consistently raised its dividend since going public in 1961, with a 511% increase in payout since 2014.
• Realty Income: A real estate investment trust that owns e-commerce-resistant properties and has increased its dividend for 29 consecutive years.
• Chevron: An energy stock that has been a solid investment for dividend seekers, generating strong cash flows and growing payouts modestly for over 35 years.
• Target: With dividend growth for 50 years, Target has outperformed its peers in profitability and has a strong track record of increasing dividends.
• Starbucks: Starbucks has increased its dividend annually since 2010 while achieving an impressive 868% growth in earnings per share over the same period.
• Brookfield Infrastructure: This company owns infrastructure projects in various sectors and has delivered total returns of more than 837% since going public in 2008, almost double the S&P 500.

Invest in growth stocks

Growth stocks are a great option for investors looking to make gains over the long term. Here are some reasons why investing in growth stocks with your $500 is a good idea:

Amazon (AMZN)

Amazon is a great option for growth-oriented investors. Amazon is the second-largest company in the US in terms of sales, behind Walmart. It posted a 38% sales increase in fiscal 2020, followed by a 44% increase in the 2021 first quarter. Amazon's growth is far from over, and it has its finger in many pies, including Amazon Web Services, Amazon Pharmacy, and its presence in physical retail. Amazon stock is a great option for those looking for growth opportunities with some safety.

Square (SQ)

Square is a fintech stock that is comprised of two fast-growing operating segments: the seller ecosystem and peer-to-peer digital payments platform Cash App. The seller ecosystem provides point-of-sale devices, loans, analytics, and other tools to merchants to help them facilitate payments and grow. In the seven years leading up to the pandemic, the seller ecosystem's gross payment volume (GPV) surged by an annualized average of 49%. Cash App's monthly active user (MAU) count has more than quintupled to 36 million in three years, and the company generates multiple revenue channels through the app. Square is a great choice for investors looking to buy businesses on the leading edge of innovation.

Berkshire Hathaway (BRK.B)

Berkshire Hathaway is a conglomerate with a market capitalization of more than $750 billion. Led by Warren Buffett, the company has consistently outperformed the S&P 500. From 1965 to 2022, it had a compound annual growth rate of 19.8% compared to the S&P 500's 9.9%. Berkshire Hathaway has a thriving insurance and logistics business and billions of dollars in passive income from dividends. The company's portfolio is predominantly cyclical, with tech stocks, bank stocks, and consumer staples. Buffett has positioned his portfolio to navigate short-term rough patches and take advantage of multiyear expansions.

Ouster (OUST)

Ouster is a developer of high-resolution digital lidar sensors. The company is bucking the trend of unprofitability in the lidar space, reporting record revenue of $26 million in Q1 2024, up 51% year-over-year. Ouster is gaining traction in huge markets like logistics and agriculture, and its gross margins are at a record 36%. With robotics requiring a lot of lidar, Ouster is well-positioned to weather any storms and come out stronger.

Bandwidth (BAND)

Bandwidth is a communications platform-as-a-service (CPaaS) company that provides cloud-based software to integrate voice and text into applications. In Q1 2024, Bandwidth posted record quarterly revenue of $171 million, up 24% YOY. The company also achieved its highest-ever Q1 adjusted EBITDA at $16 million, up 215% from the prior year. Analysts project earnings per share could double within the next two years. Bandwidth has strong growth potential and is an intriguing long-term investment opportunity.

Upstart (UPST)

Upstart is an AI lending platform that has been facing headwinds due to the high-interest rate environment. However, with the Fed signalling an end to its rate hike campaign, borrowing costs will come down and consumer loan demand should rebound. This will drive a strong resurgence in Upstart's business as more banks and credit unions adopt its AI underwriting models. Upstart's current valuation is attractive, given its immense earnings growth potential, with revenue projected to nearly triple from 2024 to 2028.

In conclusion, investing in growth stocks with your $500 can be a great way to build long-term wealth. These stocks offer strong growth potential and can be a solid foundation for your investment portfolio.

Invest in value stocks

If you're looking to invest $500, you might want to consider value stocks. Value stocks are shares in well-established companies that are trading below their true value. They are often cheaper than other stocks, and they can be a good option for investors who are looking for long-term growth.

When looking for value stocks, you can consider the following:

• Blue-chip stocks: These are stocks of large, well-established companies with a strong track record of performance. Examples include Apple and Walmart. Blue-chip stocks tend to be less risky than other stocks, as they are usually less volatile and have a history of stable financial performance.
• Dividend stocks: Not all stocks pay dividends, but those that do are often some of the strongest performers in the market. Dividend stocks provide regular payouts to shareholders, either in cash or additional stock. Examples of companies that pay dividends include Coca-Cola and Procter & Gamble.
• Exchange-Traded Funds (ETFs): ETFs are a type of investment fund that trades on an exchange like a stock. They are comprised of a basket of securities, which can include stocks, bonds, and other assets. ETFs offer investors diversification and a range of investment choices. You can get started with investing in an ETF with a small amount of money, as you only need enough to pay for one share plus any commissions and fees.

When investing in value stocks, it's important to keep an eye on commissions and fees, as these can eat into your returns. Online discount brokers tend to have lower fees, so they may be a good option for cost-conscious investors. It's also important to remember that value stocks may not provide hypergrowth, but they can be a more stable option for long-term investors.

Frequently asked questions