How to start investing with just $500

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When you have a spare $500 and are wondering whether to spend it or save it, why not consider a third option?

Invest it. Make a commitment to your financial future, instead of wasting it on purchases that will deliver only temporary pleasure.

Invest that $500 and watch it grow. Here’s how.

Decide on a goal

Investing with a purpose means that you are more likely to stick to your intention. If your aims are short-term, such as spending 1-3 years increasing your available funds for a holiday, then choose a lower risk, passive option. A term deposit or high interest savings account is probably your best choice. You can find the best rates by searching for ‘high interest term deposit’ or ‘high interest savings account’. Note that some savings accounts have qualifying criteria for the high interest rate, such as a minimum monthly deposit.

If you have longer-term objectives, such as accumulating a house deposit, saving for retirement, or simply building wealth, you could contemplate taking more risk in order to generate the potential for higher returns. Consider investing in the share market.

Choose your investment type

Assuming that you have longer-term goals that will not be satisfied with a savings account, you have several share market choices that lend themselves to a $500 investment:

Exchange-Traded Funds (ETFs)

ETFs are an excellent choice for getting started in share market investment. They deliver diversification because your investment is spread across a large number of companies. This reduces your risk while mirroring the generally growing value of the market over the long term.

Managed funds

In a managed fund your money is pooled with that of other investors. The fund manager buys and sells assets with the aim of steadily increasing the value of the fund. Before investing, check the fund’s fees, any withdrawal restrictions, and long-term historical returns. Since some funds’ minimum initial investment is higher than $500, your choice of funds may be limited.

Robo funds

Robo funds are online investment advisors using AI and algorithms to make investment suggestions and allocate funds. They are particularly useful for initially small investors (‘micro-investors’), with features like automated regular small investment deposits, or investing the spare change from your credit or debit card purchases. However, fee structures can be complicated and their investment strategies vary widely.

Individual shares

Investing in Individual shares can be risky. If you’re not a stock market expert, it’s best to stick to strong, blue-chip companies, but you may struggle to meet the minimum trading parcel size for companies with a higher share price.

Select a platform

If you wish to avoid managed funds and micro-investing robo fund apps, you can still control your own investment portfolio via a share market broker. The ASX has a comprehensive list of both full service and online brokers.

Full service brokers tend to have minimum investment and amounts larger than $500, and higher fees, but online brokers generally have a low flat transaction fee. You can link your online trading account to your bank account for speedy deposits and withdrawals, and making a buying or selling transaction is relatively simple. It would be a good idea to stick to investing in ETFs until you find your feet.

Automate for success and take a long view

By all means start with $500, but to see your portfolio really start to grow you will need to commit to adding to your invested amount regularly. A monthly automated deposit, however small, from your bank transaction account into a savings account or online investment platform will create long-term wealth.

Don’t panic if your share portfolio value suffers short-term falls. Follow the advice of Warren Buffet and aim to stay in the market for the long term rather than buying and selling frequently.

Get some good advice

As with all financial decisions, good advice is of paramount importance. Contact an RS wealth advisor for expert guidance on building a secure financial future through sound investments.

General advice disclaimer
The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.