Want to invest and grow your money but can't figure out how to get started? Here's a simple tip: Start small. If you don't have an investment portfolio or enough spare cash to create one, you can still start making even small sums of money work for you. On the other hand, if you do have a portfolio or 401(k) that's invested in mutual funds or being managed for you, investing a small sum on your own can give you a taste for managing your own money--something many experts, notably Tony Robbins, thinks we should all do.
But wait--before you start, GOBankingRates offers some excellent advice that I highly recommend you follow: If you have credit card debt, use any extra funds you have to pay that debt off. I know it's less fun than investing but it makes much more sense. These days, even high-paying investments may earn you only 4 or 5 percent, whereas credit card interest is often 15 percent or more, and can reach 25 percent or higher if you miss a few minimum payments. Not only that, carrying a credit card balance means you're charged interest on every purchase you make, whereas you won't be charged any interest at all if you pay your bill in full every month. That's why making credit card debt disappear is always the best investment you can make.
Once you've done that, if needed, here are some great $500-or-less investment choices:
Dividend reinvestment plans, called DRPs or DRiPs are a great way to make a small amount of money go far. The idea is that, rather than buying stocks in the traditional way via a broker, you buy stocks directly from the company that issues them. You can start with a very modest investment (often the price of one share) and then any dividends it earns will be automatically reinvested toward buying more shares so that your investment grows over time automatically. This works best, of course, with companies that regularly pay high dividends, ideally at least 3 percent per year.
You can also make your investment grow by setting up a small investment of, say $20 a month to be automatically deducted from your bank account and added to your portfolio--a strategy I recommend you use no matter how you decide to invest. You can learn more about DRiP programs here.
2. Buying shares one at a time.
There are plenty of low-cost online brokerages with low or nonexistent minimum deposit rules, which means absolutely anyone can start buying shares of stock, one at a time. Historically speaking, the stock market has gained more value over the long term than any other investment, even real estate, so investing in the stock market is usually a good plan.
I do this myself: I started about nine years ago with $1,000. In the years since, I've added small sums of money, little by little, for a total investment of about $3,500--but my one-stock-at-a-time portfolio is worth more than $10,000 today. Here's info on low-cost brokers to get you started.
3. Buy ETFs.
ETFs, or exchange-traded funds, are mutual funds. But rather than putting money into the mutual fund itself and letting fund managers invest it for you, ETFs allow you to buy shares of the mutual fund as though they were individual stocks, which means you can invest one share at a time. You get the diversification of a mutual fund while making a very small investment. GOBankingRates notes that one share of Vanguard's most successful ETF costs just $129.
4. Consider peer-to-peer lending.
The biggest peer-to-peer lending company, Lending Club, has been struggling with scandal this year after it was discovered that the company had made questionable loans to its former CEO and his family members, apparently for the purpose of artificially inflating its loan numbers. The company has faced falling share prices and layoffs since then. But the underlying concept of peer-to-peer lending is a sound one and there are other options besides Lending Club. Depending on the riskiness of the loan, you can earn well over 5 percent and you can reduce your risk by spreading even a small investment over multiple loans. Even so, investing in peer-to-peer lending is much riskier than putting your money into a highly-rated bond, CD, or blue-chip stock. Borrowers do sometimes default, and in an economic downturn a lot of them could default all at once. Keep this in mind when deciding whether and how much to invest, and which loans to invest in. Here's a lot more info on the pros and cons of investing in--or borrowing from--peer to peer lender.