How to Invest $500?
So you’ve got an extra $500 and you want to invest it, but you’re not sure where you should. There are a few things you’ll need to determine before you can decide how you will invest it. Are you willing to lose it? What returns are you expecting? How long are you willing to invest it? These are just a few of the questions you should ask yourself. With so many investment options, we’ll help you to narrow down your choices and help you make the best decision.
How risky are you willing to go?
If you’ve read our article on ranking investments from safest to most risky, you’ll know that investing your money in small businesses is riskier than government bonds. Similarly, investing in stocks is riskier than investing in corporate bonds. Depending on your risk tolerance, investing in stocks is probably your best decision. But this isn’t the only factor you should consider before investing your money.
How long do you plan to invest your money?
If you’re looking to invest your money for less than one year, a corporate or government bond is probably your best bet. Your return will not be large, however. You can expect anywhere from 2-4% per year, depending on the company.
If you are willing to invest your money longer than one year, equities (stocks) are probably a better option. You will avoid day to day volatility and give your money enough time to grow. You shouldn’t purchase just one stock, however. It’s probably wise to purchase an ETF (Exchange Traded Fund) which is a bundle of stocks, bonds, and securities in order to lower your exposure to one single stock.
What returns are you expecting?
Like we mentioned, investing in a corporate bond isn’t going to yield the highest amount, but it is a safer investment lowering the probability that you’ll lose your money. If you are expecting greater than 5% returns, equities are your best bet. If you’re expecting 2-4% annually, opt for a corporate bond.
If: You want to invest in stocks
If you’re looking to invest in individual stocks, a conservative approach would be to invest in a value stock. These stocks tend to have a history of profitability and oftentimes offer high dividends (dispersants of the companies profits in the form of cash) to their shareholders. Stocks like AT&T, Pepsi Co, and UPS all offer high dividends.
If you want a more aggressive approach, consider investing in a growth stock. These stocks are, as the name suggests, growing. They tend not to offer large dividend yields, instead, they invest their profits back into the company in order to make even larger profits. Companies like Apple, Amazon, or Starbucks are considered growth stocks.
In recent months, platforms that offer equity trading have begun to offer $0 commissions. This means that you can buy or sell a stock for $0 in fees. Purchasing stocks is a pretty simple process, you’ll need to open an account and become verified and then fund your account. You can read our complete guide on investing in the stock market here!
If: You want to invest in corporate bonds
Investing in bonds is a much safer alternative to investing in equities. While your return probably won’t be as large, many people who are risk-averse or are nearing retirement chose this option.
Similar to purchasing equities, you’ll need to open a brokerage account that offers corporate bonds. Understand how your bond is structured so you know when to expect your money. Many bonds will offer coupons, or annual interest payments made to you before the maturity date, while others do not.
Each individual's circumstance is different, but by asking yourself these questions, you can make a better decision on where to invest your money. Always do your research before making any investment and consult your financial advisor if you need additional help. No matter how you chose to invest your money, you’ve already made a wise decision, investing your money.