Investing with $500

[Mr Nice Guy]

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.

[disneysteve]

What other savings do you have? At 22, I'd be much less concerned with investing and much more concerned with building savings and preparing to start my adult life, move out, etc. Do you have money set aside for emergencies? You have a car so what about a car repair fund? Do you have the money for first and last month's rent and security deposit for your first apartment? What about money to help equip that apartment? And how are you paying for school? Is your family paying for it? You say there is no debt so I'm assuming that means no student loans - congrats on that.

[bjl584]

I agree with Steve. Focus on saving up some cash before worrying about investments.

[Mr Nice Guy]

I guess im a little bit too impatient with the saving thing, will work on it. Thanks thanks for the responses.

[bjl584]

I guess im a little bit too impatient with the saving thing, will work on it. Thanks thanks for the responses.

A lot of people make the mistake of being cash poor and having all of their money tied up in investments and retirement accounts. Always be sure to keep sufficient cash on hand for emergencies and for day to day living. Cash is a very powerful tool, and if you learn how to leverage it, you can save a lot of money over the course of your life.

[disneysteve]

A lot of people make the mistake of being cash poor and having all of their money tied up in investments and retirement accounts. Always be sure to keep sufficient cash on hand for emergencies and for day to day living. Cash is a very powerful tool, and if you learn how to leverage it, you can save a lot of money over the course of your life.

Not just that, but as I pointed out, you have a predictable need for liquid savings in the near future. You need to plan accordingly.

[jpg7n16]

You have a predictable need for liquid savings in the near future. You need to plan accordingly.

Exactly

The Investment has to match the time horizon. And for Mr. Nice guy, with being in school and no other known accessible savings in place, time horizon is very short (textbook next semester, food next month, date night, concert, head start on EF upon graduation, etc.). Such short term needs could easily require the full $500.

So since the need is extremely short term, the investment should be also. CDs won't even work cause they would be tied up for a few months at a time. Money market accounts may have minimum balance requirements. That leaves cash.


I'd just add it to my checking/savings account.

[disneysteve]

Money market accounts may have minimum balance requirements.

There are lots of MMAs that don't have minimums. Of course, considering the pathetic returns today and the small amount here ($500), it really doesn't matter. 1% on $500 for a year is a whopping $5. I'd rather keep it in the checking account and have full access.

[jpg7n16]

There are lots of MMAs that don't have minimums. Of course, considering the pathetic returns today and the small amount here ($500), it really doesn't matter. 1% on $500 for a year is a whopping $5. I'd rather keep it in the checking account and have full access.

hahahah Sorry, I laughed when I read that

[disneysteve]

hahahah Sorry, I laughed when I read that

Yep. Not really funny but true. If we were talking about a $20,000 emergency fund and where to park that, it would be a different conversation, but where to hold $500 that might be needed soon? You might as well keep it somewhere safe at home or in your non-interest-bearing checking account. It just doesn't matter at that point.

[snshijuptr]

I know it's frustrating. I'm itching to invest, but I'm really, really glad that when I graduated I had around $15,000 free. Within about 6 months of graduating the money had gone to moving, buying a car, getting engaged, moving again, furnishing our new apartment, paying deposits on utilities and services, and starting an e-fund.

Steve, I have to disagree that he would earn a "paltry" $5 in savings. Any earnings are nice when you are first starting out, and setting the money in a separate account feels really good, a tangible success.

Mr Nice Guy, write out a series of goals with due dates and amounts and work toward them. It feels really good to check stuff of your list. This may sound silly, but it really feels like growing up.

[disneysteve]

Steve, I have to disagree that he would earn a "paltry" $5 in savings. Any earnings are nice when you are first starting out, and setting the money in a separate account feels really good, a tangible success.

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.

[KTP]

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.

[jpg7n16]

On a different note, have you considered only contributing the employer match to the 401k, and putting the extra to a Roth? (If they match 3%, contribute 3% to 401k and 7% to the Roth) - or if your employer offers a Roth401k, switching to that?

Your income is very low right now, and it'd likely be in your best interest to pay the taxes today.

[Mr Nice Guy]

On a different note, have you considered only contributing the employer match to the 401k, and putting the extra to a Roth? (If they match 3%, contribute 3% to 401k and 7% to the Roth) - or if your employer offers a Roth401k, switching to that?

Your income is very low right now, and it'd likely be in your best interest to pay the taxes today.

That is a great point. Will consider. Thank you everybody for your input on my situation.