How to Start Investing With $500 or Less
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“How do you start investing with $500 or less?” This is a question I receive almost daily as well as in my former day job as a stockbroker. Many believe that you can’t start investing with 500 or less and allow that to hold them back from growing their wealth.
Yes, investing with little money can be a challenge though it is most certainly possible. You just need to know where to start and what options you have to start investing. I firmly believe that if investing with 500 dollars is the most you can start with that time will do awesome things to it – but…you have to start!
You Can Start Investing With $500 at Numerous Brokerages
If you need to start investing with $500 or less the first big challenge is going to be finding the right broker for you. In many cases I’d recommend someone like Vanguard, Schwab or Fidelity.
The problem is you won’t have enough funds to start with any of those three in most cases. Take a look at their minimum opening balance requirements:
- Vanguard – you’re subject to their fund minimums, which can go as low as $1,000 for some of their mutual funds. You can get into their standard brokerage accounts with no minimums for stock trading, though their tiered pricing leaves a bit to be desired for someone just starting out.
- Schwab – you need at least $1,000 to open most accounts, though is waived if you set up a $100 monthly electronic transfer.
- Fidelity – you need to have $2,500 to open an account with Fidelity.
Knowing that those options are off the table you will then want to look at other brokerages that will allow you to open an account with $500 or less. Those are:
- Ally Invest – no minimum deposit and industry-low pricing of $4.95 per trade
- Betterment – no minimum deposit and they charge a .25% annual fee
- E*Trade – no minimum deposit on IRAs and they charge $6.95 per trade
- Wealthsimple – no minimum deposit and the first year is free for those with under $5,000
Heck, you can start with next to nothing if you choose an app like Stash Invest who allows you to start investing with as little as $5. When you open an account with Stash Invest they start you off with $5 so you can start investing right away.
Stockpile is an option similar to Stash Invest, but they have no minimum deposit required. Stockpile also gives you $5 in stock for free when you open an account.
Going back to the above online brokerages, each allow you to open an account with $500 or less and recommend them to investors on a regular basis. Your specific need will dictate which broker you should open an account with.
When you’re investing with $500 or less you want to throw out any brokerage that charges too much in fees. Fees are an important part of investing and eat away at your growth.
I wouldn’t choose one broker over another for a negligible difference though – as you wan to make sure you pick the best overall fit for your needs.
Buy Funds for Free
A common option for those investing with 500 dollars are mutual funds. It makes sense, as they give you the possibility of being diversified for not much money. The problem with this approach is you’ll be running into the risk of higher than desired fees that will eat up too much of your funds.
That being the case, the best option is going to be the route of investing in index funds. If you can find them for free, even better. Index funds are just like mutual funds and give you access to a basket of stocks, but the fees are generally much lower. Thus, more of your money is working for you.
What you really want to find though is an online brokerage that will allow you to trade Exchange-Traded Funds (ETFs) for free and thankfully there are a number of options to consider. Those are:
- OptionsXpress – because of their partnership with Schwab you can get access to their 100 or so free ETFs.
- Etrade – Etrade has roughly 90 ETFs you can trade for free, though they tend to have higher expense ratios.
- TD Ameritrade – TD Ameritrade has roughly 100 ETFs you can trade for free.
Bigger brokerages like Vanguard, Fidelity and Schwab all offer commission-free ETFs but you run into the minimum account issue I discussed earlier making most not an option.
If you’re new to investing and rather not manage the investing on your own then automated retirement programs like Betterment or Wealthsimple will do much of the same with minimal cost.
don’t overlook the easiest place to start investing with less than $500
While you can invest at many online brokers with less than $500, don’t overlook the best place to start investing with little money – your 401(k) plan. In most instances you need nothing to start investing in your 401(k) plan at work. That’s also not to mention the fact you often receive a match (which is free money) on part of your contributions.
Many find starting their first 401(k) intimidating. I know I did, but thankfully it can be done quite simply. Here’s our guide on how to set up your first 401(k) if you’ve never had one before.
If you don’t know what investments to select, or think you could do better with what you’ve selected, Blooom is a great resource to help better manage your 401(k) investments.
Blooom is a service that will analyze your plan to see if you’re overlooking lower cost or better performing funds within the plan.
Blooom will give you a free analysis of the investments in your plan to lower fees so more of your money will work for you. Blooom does charge $10 per month, but offers a 30-day free trial to help get your 401(k) plan in shape.
invest in real estate
Investing in the stock market isn’t the only way to invest. You can also invest in real estate with $500. Many hear real estate investing and they come to the conclusion you need thousands of dollars. However, with crowdfunding you can invest in real estate with $500.
Real estate crowdfunding allows you to invest in real estate by putting your money into a pool with other investors. To do this, you can make equity investments in a commercial propertie. Investors receive an equity stake in the property and returns are provided in the form of shares of the rental income that is generated.
You can start investing in real estate with Fundrise for as little as $500. You can invest in either a retirement or non-retirement account with Fundrise and can choose to invest in funds that provide income or growth potential.
Real estate investing is a great option for those looking to create passive income, and with crowdfunded investing you don’t have to deal with the hassle of property management or needing to be a accredited.
Buy Fractional Shares
If you’re investing with $500 or less then a challenge is going to be investing in enough stocks to get proper diversification. Meaning, if a stock or ETF you want to buy is trading at $50 then you’re only going to be able to buy ten shares max.
One of the better ways around this is buying fractional shares. This allows you to start investing while also getting some sort of exposure to numerous holdings. The two best options for the fractional share approach are Sharebuilder and Motif Investing.
You can open an account with Sharebuilder with whatever amount you like as there is no minimum balance required. They then allow you to set up what’s called an Automatic Investment Plan which allows you to set up a specific interval for your investing, dollar amount and holdings.
You won’t get rich overnight with this, but it can be a good way to start. One other thing to keep in mind is their platform is very limited so that will hold many back.
The other option, Motif Investing, is a bit different. You can open an account with Motif Investing for as little as $250 and invest in up to 30 stocks or ETFs for $9.95. Motif Investing takes a theme-based approach that allows you to set up your own index fund.
If you need to start investing with $500 or less Motif can be a great option as you get instant diversification and get your feet wet with investing. I’ve had an account with Motif for over three years as a play account and love using their platform.
Get Direct Ownership
The final way to start investing with $500 or less is buying directly from the company. I will say this may not be worth the hassle, and risks having shares of stock in various places but it is still an option to consider especially if you’re a buy and hold type investor.
You can buy directly from the company in one way – through a Transfer Agent. This Transfer Agent is usually a company known as ComputerShare. If you call their investor relations department they should be able to tell you who you can buy directly from.
Most will have minimums of either $100 or $500 and some might charge a small fee, but this can be an option.
It Can Be Done, Just Set A Goal
Investing with $500 or less can be a challenge, however don’t give into the belief that it won’t accomplish anything. You will actually be harming yourself more in the long run if you don’t start investing. That’s for one simple reason – compound interest.
While it can be a difficult topic for some to understand, it is your most powerful ally in building wealth. You can educate yourself about compound interest and other investing topics by picking up one of my favorite investing books for beginners.
If you don’t have the funds to start, then set a goal – it’s as simple as that! Make a commitment to set aside $25 or $50, or more, a month and if you can automate it, even better. Before you know it, you’ll have the funds you need to get started in the stock market but you must first set a goal to do it and then act on it. It might not be easy, but it’s most definitely simple!
Additional resource: If you want to start investing in the stock market but feel you have little money to invest, don’t let that hold you back! You can invest in the stock market with little money through the right channel. One option is Betterment. Betterment allows you to open an online brokerage account with no minimum balance and is one of the cheapest brokers out there. You open the account, tell them what your goals are and they handle the rest.
What are your recommendations for people wanting to start investing with $500 or less? Why do you think we make excuses to not start when we have little means to do so?
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