Contrary to popular belief, you don’t actually need to be rich to start investing. Even if you have less than $500 to invest, you can get in on some fantastic investment ideas that only require a few hundred dollars to get started and there’s no single best way to invest.
Whether you’re trying to save for retirement, earn additional money or achieve some other type of savings goal, here are four awesome ways you can start investing with less than $500.
Consider DRIPs or DRPs
A dividend reinvestment plan, sometimes referred to as DRIP or DRP, is a small investment option that allows investors to buy stocks directly from companies without the use of a broker. These programs generally allow you to participate as long as you can afford to buy at least one share.
Here are some other benefits that come along with DRIPs:
- Dollar-cost averaging: You can invest a specific dollar amount — for example, $50 or $100 — on a monthly basis. By investing regularly, you’re buying during all points of the market — during both volatility and upswings. The concept of dollar-cost averaging is critical for long-term investing as it provides you a more representative and accurate return over time.
- Dividend reinvesting: As the term suggests, dividend reinvesting means dividends paid by the company are reinvested into your holding, which allows you to buy more stock(s). Dividends are simply earnings that the company pays out to its shareholders.
- Little to no fees: Fortunately, there are DRIPs that don’t charge any fees at all. What could be better?
Ultimately, DRIPs or DRPs are super affordable investments that can positively impact your portfolio over time.
Invest in Individual Stocks
If you’re wondering how to invest in stocks with little money, individual stocks could be an option for you. Through discount brokerage firms like E-Trade or TD Ameritrade, you can buy individual stocks for a small fee of $5 to $10 per trade.
Thus, if you have $500 to invest, that would leave you $490 to buy stocks that have a share price less than that amount.
Pick Mutual Funds
Although many mutual funds do require a minimum investment in the thousands of dollars, there is a myriad of mutual funds that will allow you to make a small initial investment of $500 or even less. Morningstar’s mutual fund screener will show you 200 different mutual funds that you can invest in with a minimum deposit of $500.
Erik Gordon, CEO of ErGo Ventures LLC, a private equity and venture capital investment company, notes that mutual funds are one of the best investment options for somebody who is just getting started. These funds allow you to diversify your portfolio since you own a few hundred stocks that prove to be beneficial for long-term investing.
Start a Business
The most important thing you can do as a small investor is to know yourself. If you possess an entrepreneurial spirit, your money is most likely best spent on investing in you and your ideas to help make yourself money.
You may be surprised to learn that you can actually start a business with less than $500 to invest. Numerous investment ideas and options are available for starting a blog with little to no money, and you can even find ways to monetize this. Furthermore, there are other small business ideas you can come up with, such as offering dog walking services, car detailing, or child care.