Investing with $500

[sm808]

Stick it in a Roth IRA invested in 5 year CDs or something until you can figure out a use for it. If you never figure out a use for it, then you have a Roth contribution you would not have had otherwise. Also, this might act a bit like a piggy bank and keep you from making a impulse purchase you later regret.

If you're looking to make it a bit less accesible, but it in an online savings account or an account with your bank without ATM access. I don't agree with putting $500 in a retirement vehicle because when you need it, you will be penalized on it - not worth it. Put it in an account where you can use it as a security deposit on your first appartment, use it for deposits on utilities, buy books next semester instead of charging them, whatever. There are ALOT of expenses around this time, so I'd just suggest putting it in a saving account (however paltry the interest rates...) and throwing whatever you have left each month on top of it to help it "grow" safely to start your adult life!

[Slug]

Yes, but the hassle and delay of moving money around might outweigh that $5 in interest. It may take 3 days to transfer money from a money market to your checking account. If that is all the savings you have, that could be a problem. I'd say it is better to keep the cash readily accessible by check or ATM until he builds up a bigger cushion. Either way works, of course.

I'm going to disagree too only for the reason that setting the money aside and forcing a transfer for access creates good habits in the long run. That $500 won't always be that small, and these rates have nowhere to go but up. Better to develop the good habits when you're young.

Oh, and going with the 401k match rate and putting overage into a Roth is great advice.

[disneysteve]

I'm going to disagree too only for the reason that setting the money aside and forcing a transfer for access creates good habits in the long run.

I don't disagree with the 'habit' thing but I think the first layer of your emergency fund needs to be immediately accessible. That might even mean cash on hand, not in a bank of any sort. If all the money I had to my name was $500, I don't think it would be anywhere but in a stack of $20 bills somewhere safe in my house. Heck, even today when we have a mid-6-figure portfolio, we keep cash on hand just in case it is ever needed.

[krantcents]

A little background
-22 yrs old
-Lives with dad
-In school
-Makes just under 20k a year
-Contributing 10% to 401k (not much, but its adding up!)
-Zero debt (car paid off, no consumer, no house)


Would it be a smart idea to open up a brokerage account and just toss $500 into a spider fund like SPY, through ScotTrade or something? I'd like to be able to earn a little passive income with the little money I have, and not have it tied up in an IRA.

If you were in my shoes, any advice? Well, obviously, increase income, but anything else? Thanks for the input, you guys always seem very logical and I appreciate the different opinions.

Particularly for young people, I like Roth IRAs, because there is no penalty for withdrawal. A regular investment account also works because of lower capital gains tax. Dividend mutual funds or stocks can create passive income, but in a regular account it is taxable. Good luck.

[abraham.a]

investing and saving is always good at any stage . you should take a chance and invest your money . hope new year brings happiness to you .

[ActYourWage]

I don't agree with putting $500 in a retirement vehicle because when you need it, you will be penalized on it - not worth it.

I believe they were referring to the contribution to the Roth IRA. You can pull the contributions penalty free.

[LiveTradingZone]

I would not try to invest until you have at least $5,000 to begin with. Otherwise you will lose all the money due to fee's and commission. Also you don't have enough money to risk for profit. 5% is the maximum risk you should take on any given trade, and even that is a high risk.

[97guns]

try lego's and tinker tots, the returns are impressive

[Mr Nice Guy]

try lego's and tinker tots, the returns are impressive

lol. Probably better than shares of AAPL

[BudgetSurgeon]

A little background
-22 yrs old
-Lives with dad
-In school
-Makes just under 20k a year
-Contributing 10% to 401k (not much, but its adding up!)
-Zero debt (car paid off, no consumer, no house)


Would it be a smart idea to open up a brokerage account and just toss $500 into a spider fund like SPY, through ScotTrade or something? I'd like to be able to earn a little passive income with the little money I have, and not have it tied up in an IRA.

If you were in my shoes, any advice? Well, obviously, increase income, but anything else? Thanks for the input, you guys always seem very logical and I appreciate the different opinions.

Contrary to a lot of responses you have received, I would DEFINITELY invest some of my money, since you have ZERO debt (bravo!), and live home with your Dad (hence, minimal expenses). Investments like putting money into a SPDR like SPY is extremely liquid, and not binding like a 401K or IRA. At age 22, you can also weather market storms (you are bound to see some big market corrections along the way) over many years. That said, I would spread that $500 out into a diversity of investments: ETF's (like SPY), Bonds, Commodities, CD's, etc. Given your age, the majority of that $500 can be plowed into SPY, since you can afford the risk at your age, and your current situation. Also, never be afraid to cash out from a profit - say if you make 10% on your investment. You can always buy again on the dips.

Best of luck,

BudgetSurgeon

[kv968]

That said, I would spread that $500 out into a diversity of investments: ETF's (like SPY), Bonds, Commodities, CD's, etc. Given your age, the majority of that $500 can be plowed into SPY, since you can afford the risk at your age, and your current situation. Also, never be afraid to cash out from a profit - say if you make 10% on your investment. You can always buy again on the dips.

Best of luck,

BudgetSurgeon

How can you spread out $500 efficiently? The very minimum in almost any mutual fund is $1000 and if he were to just buy the SPY at Scottrade the commissions alone would be 2.8% of the investment.

[BudgetSurgeon]

How can you spread out $500 efficiently? The very minimum in almost any mutual fund is $1000 and if he were to just buy the SPY at Scottrade the commissions alone would be 2.8% of the investment.

There are many ETF's, if you are looking to invest in a particular market segment, that don't require $ 1,000. They are share-based, and yes, you can buy 1 or 2 shares if you like. Since your commission concern is a valid overall concern, I would strongly recommend using a real discount broker like Interactive Brokers, where the commissions are ultra-low, and the fills are very good. Other "discount" brokerages like TD Ameritrade, Scottrade, e-Trade, etc., typically charge a low-end flat fee minimum, which as you suggest, may be a significant % of overall investment.

[kv968]

There are many ETF's, if you are looking to invest in a particular market segment, that don't require $ 1,000. They are share-based, and yes, you can buy 1 or 2 shares if you like. Since your commission concern is a valid overall concern, I would strongly recommend using a real discount broker like Interactive Brokers, where the commissions are ultra-low, and the fills are very good. Other "discount" brokerages like TD Ameritrade, Scottrade, e-Trade, etc., typically charge a low-end flat fee minimum, which as you suggest, may be a significant % of overall investment.

Sorry if I was misunderstood. I wasn't saying that ETF's require a $1000 to invest, I was talking about if he were to go the mutual fund route. As far as ETF's, sure most trade around $20-$50 and you could buy just one share if you want, but again, the commissions would be over 2% for the $500 let alone if he were to divy it up even further.

And Interactive Brokers wouldn't help at all. They do have a low "per share" commission but you need $10k to open an account and have $30 worth of commissions per month or you get charged a $10 fee. Definitely not for your casual trader and/or someone with little money to start with.

[BudgetSurgeon]

And Interactive Brokers wouldn't help at all. They do have a low "per share" commission but you need $10k to open an account and have $30 worth of commissions per month or you get charged a $10 fee. Definitely not for your casual trader and/or someone with little money to start with.

Wow, I just checked this and you are right. I've been with them for years, and I believe that I initially opened up an account with them for $5 K. Now the requirement for an individual acct is $ 10K, as you stated. And yes, that's true, about the $10/fee. They instituted that several years ago........when I initially joined there was no such minimum trading fee. So, overall, I agree, IB would not be appropriate for someone like the OP, until he had about $10K available for investing.

So, given the last few posts, I would look for some kind of deals with the "discount brokers". Sometimes they run deals like "1st 10 trades are free", if you open an account with us. Look to see what the minimum amount is for opening an account, and look at the commission cost ratio as KV968 adeptly pointed out. Alternatively, you may want to accumulate a few grand (maybe as much as 5K) before opening such an account, to lower the overall commission %, by investing more from the outset.

[Petunia 100]

I think you're going to have a hard time getting started with just $500.

One option of which I am aware is Pax mutual funds. They are a no-load family, have a few funds to pick from, and their minimum is just $250.

But what I really suggest is keep saving until you hit $1,000, then open a Vanguard Target Retirment Fund. Those funds contain total stock market, total international stock market, and total bond market.