How to Invest $500: 10 Ways to Grow Your Wealth

Wondering how to invest $500 to start growing your wealth? Now is the time to break free from the misconception that investing is only for the rich.

If you find yourself with an extra $500 and want a quick return, there are several options worth considering. Even with a modest amount, like $500, you can start your journey toward financial growth and security.

We’ll delve into the potential benefits and risks of investing $500 in the US, giving you a realistic view of what to expect.

So, if you’re ready to take control of your financial future and embark on an investment journey with just $500, this post is for you.

How to Invest $500 for a Quick Return?

Consider Low-Cost Index Funds

One of the most popular and effective ways to invest $500 is by putting it into low-cost index funds. Why? Because it will allow you to diversify your investments across a wide range of stocks or bonds.

Investing in low-cost index funds will reduce the risk of investing in individual companies. With just $500, you can gain exposure to hundreds or even thousands of different securities.

How to Invest $500 with Low-Cost Index Funds?

You can begin by choosing one of the best index funds with the lowest expense ratio (see table below). Always consider the index fund’s performance, asset allocation, and market capitalization when choosing your index fund.

Index Fund	Expense Ratio
Fidelity 500 Index	0.015%
Fidelity Total Market Index	0.015%
Schwab S&P 500 Index	0.02%
iShares S&P 500 Index	0.03%
Schwab Total Stock Market Index	0.03%
Vanguard S&P 500	0.03%
Vanguard 500 Index	0.04%
Vanguard Growth Index Fund Admiral Shares	0.05%

Pros:

• Diversification: Investing in index funds can spread your money across multiple assets, reducing the impact of any single investment’s performance.
• Lower fees: Index funds typically have lower expense ratios than actively managed funds, meaning more money stays invested and works for you.
• Simplicity: Investing in index funds is straightforward and requires minimal effort.

Cons:

• Market fluctuations: As with any investment, index funds are subject to market volatility. It’s important to be prepared for potential fluctuations in value.
• Limited control: You don’t have direct control over which specific companies or assets are included in the fund.

Invest $500 in a High-Yield Certificate of Deposit

Investing $500 may not seem extraordinary, but it can still be a smart move toward building wealth. One option worth considering is investing in high-yield deposit certificate (CD).

High yield savings account offers several benefits for smaller investments and can provide a safe and predictable return on your money.

Benefits of investing in high-yield certificates of deposit with $500

High-yield CDs are an attractive investment option for individuals looking to grow their savings without taking too much risk. Here are some key benefits:

1. Higher interest rates: Unlike traditional savings accounts that often offer low interest rates, high-yield CDs typically provide higher returns on your investment. With $500, you can invest in CDs that offer competitive interest rates, that can earn more money over time.
2. Fixed terms: When you invest in a CD, you agree to keep your money locked away for a specific period, known as the term. This fixed-term ensures that your investment remains intact and untouched until maturity. Short-term CDs are a great way to invest, usually ranging from three months to one year. On the other hand, long-term options can be a wise investment strategy that can span multiple years.
3. Invest in high-yield CDs for predictable returns: These investment options offer fixed interest rates throughout the term. That means you know exactly how much interest you’ll earn when you invest in the CD’s duration. Investing provides peace of mind and allows for better financial planning. Investing to secure your future and make your money work for you is vital.
4. Safety: Investing in high-yield CDs is generally considered safe since they are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor per institution. This protection ensures that your principal amount is secure even if the issuing bank faces financial difficulties.

Certificate of Deposit Terms and Interest Rates

When choosing a high-yield CD for your $500 investment, it’s essential to consider the term and interest rate options available. Here are a few things to keep in mind:

1. Short-term CDs: Short-term CDs typically have lower interest rates but offer more flexibility. In case you need access to your funds sooner, a three-month or six-month CD might be suitable.
2. Long-term CDs: Long-term CDs generally offer higher interest rates than short-term options. You may benefit from these higher rates if you can afford to lock away your money for a more extended period, such as one or two years.
3. Interest payment frequency: Some high-yield CDs pay out interest monthly, while others compound the interest and pay it out at maturity. Consider your financial goals and whether you prefer regular income or maximizing your returns upon maturity.

Drawbacks and limitations of investing in high-yield certificates of deposit

While high-yield CDs present numerous advantages, there are also some drawbacks and limitations to be aware of:

Limited liquidity	Unlike savings accounts that allow easy access to your funds, CDs have limited liquidity during the term. Withdrawing money before the CD matures often results in penalties or loss of earned interest.
Opportunity cost	High-yield CDs provide safety and predictability, but they may not generate as much return as other investment options like stocks or index funds over the long term. Evaluate your risk tolerance and financial objectives before investing in CD.
Minimum deposit requirements	Some banks may require minimum deposits higher than $500 for their high-yield CD offerings. Researching different institutions and finding those that accommodate smaller investments is essential.

Investing $500 in high-yield certificates of deposit can be a wise choice for individuals seeking a safe and predictable return on their investment.

Use Your $500 to Start a Side Hustle

If you want to make the most of your $500, why not consider using it as a starting capital to build a profitable side hustle? You can turn that initial investment into a successful venture with the right low-cost business idea and creativity.

How to Invest $500 with Low-Cost Business Ideas?

When starting a side hustle with $500, choosing a business idea that requires minimal upfront investment is crucial. Look for opportunities to leverage your skills or hobbies without breaking the bank. Here are some low-cost business ideas to consider:

1. Freelancing: If you have special talents like writing, photography, web design, freelancing can be an excellent option. You can offer services on platforms like Upwork or Fiverr and gradually build your client base.
2. E-commerce: Starting an e-commerce store has become easier nowadays. Consider dropshipping or selling handmade products on platforms like Etsy or Shopify.
3. Consulting: If you have expertise in a specific field, such as marketing or finance, consider offering consulting services to small businesses or individuals. You can provide valuable advice and guidance while earning money on the side.

While $500 may not seem like a vast amount, investing time and effort into your side hustle can yield significant returns. You need dedication, persistence, and an ongoing commitment to learning to succeed in business.

Don’t miss reading: “29 Signs You’re Going to be a Millionaire Someday“

Invest $500 in Savings Bonds

Savings bonds can be an excellent option for investing $500, offering safety and stability backed by the government. These bonds allow you to lend money to the government, which they promise to repay with interest over a specific period. 

The interest rates on savings bonds are fixed and determined when you purchase them. This ensures that you know exactly how much your investment will grow.

Savings Bonds are very popular investments because they offer safety and stability. Unlike other investments that may fluctuate in value, savings bonds are considered low-risk because the government backs them. This means that even if the economy is downturned, you can rest assured that your investment is secure.

Types of Savings Bonds:

Different savings bonds are available, each with its features and benefits. Each type of bond has its advantages. Thus, you must consider your financial goals before choosing the right one.

Series EE Bonds	These are often purchased at half their face value and mature after 20 years. They earn interest for up to 30 years, making them a long-term investment option.
I Bonds	These bonds are designed to protect against inflation as they earn both a fixed rate and an inflation rate. They have a maturity period of 30 years but require holding them for at least one year before cashing out.

Look into Robo-Advisors

Think about robo-advisors if you want the experts to manage your funds. These automated platforms use algorithms to create and manage investment portfolios based on your risk tolerance and financial goals.

Many robo-advisors offer their services for a small fee, making them accessible even with a modest initial investment of $500. You just have to find the asset investment platform that suits your investment type.

Pros:

• Professional management: robo-advisors provide professional portfolio management without requiring a large initial investment or high fees.
• Customization: You can personalize your investment strategy based on risk tolerance and financial goals.
• Convenience: robo-advisors handle your investment decisions, saving you time and effort.

Cons:

• Limited human interaction: If you prefer a more personalized approach or have complex financial needs, robo-advisors may not offer the level of human interaction you desire.
• Potential for errors: While robo-advisors are designed to minimize errors, technical glitches or algorithmic mistakes are still possible.

Invest $500 in Fractional Shares of Stock

Explore the stock market and invest your $500 buying shares of blue chip stocks or companies you admire. Many platforms and online brokers today offer fractional shares of stock for investors with low capital.

What are fractional shares of stock?

Fractional shares allow investors to purchase a fraction of a particular stock rather than a whole share. This means that even if the price per share is expensive, you can still invest with just a tiny amount of money.

For example, let’s say you want to invest in a popular company like McDonald’s (Ticker: MCD) but don’t have thousands of dollars to buy many shares. No worries, with fractional shares, you can invest as little as $25 and own a portion of McDonald’s.

By buying fractional shares, you can now afford to invest in many established companies with the potential to grow over time.

This opens up new investment opportunities and allows you to build a diverse portfolio without needing substantial capital upfront.

Buy Some Shares of REITs

Have you ever thought of investing in real estate? You can use your $500 to buy REIT shares (Real Estate Investment Trusts) monthly or every period you want instead of owning a real property with huge mortgages and strict document requirements.

Advantages of Investing in REITs:

• Regular Income: REITs can be your income accelerators as they generate revenue from rental properties or real estate projects. REITs are required by law to distribute a huge portion of their income to shareholders. This means that you can receive regular dividends from your investment as an investor.
• Diversification: By investing in REITs, you can diversify your investment portfolio beyond traditional stocks and bonds. Real estate has historically exhibited a low correlation with other asset classes, which means that it can help reduce overall portfolio risk.
• Liquidity: Unlike direct ownership of properties, investing in publicly traded REITs provides liquidity. You can buy and sell shares on stock exchanges, allowing you to enter or exit your investment position quickly.
• Professional Management: When you invest in REITs, you benefit from professional management. Experienced teams handle property acquisition, leasing, maintenance, and other operational aspects of real estate investments on behalf of the investors.

Grow Your $500 with Dividend Reinvestment Plans (DRIP)

Perhaps you’ve heard about the power of compound interest. Then, consider setting up a Dividend Reinvestment Plan (DRIP). You can apply this technique by buying shares of dividend-paying stocks and then reinvesting the income from dividends into buying more shares over time.

Over time, these additional shares can generate even more dividends, which can be reinvested. This compounding effect can significantly boost your overall returns in the long run.

How to Set up a Dividend Reinvestment Plan (DRIP) Account?

Many well-known companies, such as Coca-Cola, Procter & Gamble, and Johnson & Johnson, offer DRIPs for their shareholders. To enroll in a company’s DRIP program, you typically need to own at least one share of their stock.

You can also enroll a DRIP account through a brokerage firm that offers access to DRIP programs. Once registered, any dividends earned from your shares will automatically be used to purchase additional shares on predetermined dates.

Another way to earn dividends is by investing in any of the Top 10 Stocks that Pay Monthly Dividends.

Diversify your Portfolio

Always remember that diversification is a powerful investing method to minimize risks and achieve capital growth. Allocate your $500 to other investment products or companies in other sectors.

Instead of putting all your eggs in one basket by investing in a single asset, you can spread your cash across different industries. Other successful businesses exist in the technology, food, health, manufacturing, energy, AI, and financial sectors.

Learn New Financial Skills

Why don’t you spend $500 to attend a training or seminar about investing, trading the stock market, entrepreneurship, or any program that interests you? This will enhance your abilities and potentially increase your earning potential.

Consider exploring online courses, workshops, or certifications that align with your passion. These resources can provide valuable knowledge and skills that may open doors to new opportunities. Whether you’re interested in coding, graphic design, marketing, or any other industry, there’s likely a course out there that suits your needs or expertise.

Disclaimer: This article is for information purposes only and should not be considered professional investment advice or endorsement of particular asset. All investments have risks. Always practice due diligence before investing in any asset.