Got $500 to Invest in Stocks? Put It in This Index Fund. | The Motley Fool (2024)

If you are looking to put a small amount of money to work, you're better off getting as much diversification as you can.

With investing, you have to get started somewhere, and $500 is a great place to begin. The key, however, is to build a foundation for the future with that cash.

Yes, you could buy a stock, but a better option will probably be an index-based pooled investment product, otherwise known as a fund. This is why you'll probably be best off with Vanguard Total Stock Market ETF (VTI 0.98%).

Saving is the key to your financial future

It isn't all that exciting, but the truth of the matter is that the first step toward a bright financial future is to live below your means. That's the only way that you will ever be able to save money to invest. Of course, before investing, you should probably create an emergency fund (in a bank account, CD, or other easily accessible but super safe account) with three to six months of living expenses in it. But once that's done, you'll be ready to start exploring Wall Street-related options.

The thing with investing is that you can only buy so many shares of a stock with $500. Some stocks, like the Class A shares of Berkshire Hathaway (BRK.A 0.99%), are worth so much that you might not even be able to buy a single share. Companies in which you could buy a lot of shares, meanwhile, would likely be higher-risk penny stocks, which is not a space where most investors should be treading. To start, you want something conservative, and you want diversification.

The go-to for that combination is a fund, which is where a lot of investors pool their money together and give it to a financial professional to invest. Probably the best-known option here is a mutual fund, but most mutual funds require more than $500 to get in the door. Luckily, there's another option: exchange-traded funds (ETFs).

You will need a brokerage account

A brokerage account will be required to buy an ETF, but that's not a difficult thing to open up, and many brokers are happy to let you start with $500 (or less). The list is long, from E*Trade to Robinhood Markets. You'll have to fill out some forms and then send the broker your money.

After that's done, you should probably put your $500 into Vanguard Total Stock Market ETF. There are several reasons for this.

First, as noted, you will want to maximize the diversification you get with your $500. As Vanguard Total Stock Market ETF's name implies, it effectively owns a piece of the entire stock market.

There are over 3,700 stocks in the fund. It covers every market sector, with the largest exposure to technology, at roughly 31% of the portfolio. The smallest sector is basic materials, at just under 2%. There is a lot in between, like financials (10%), healthcare (12%), industrials (12%), and consumer discretionary (14%). You get the idea -- there's a broad mix of sectors and a lot of stocks in the ETF, providing you with a huge amount of diversification for a very small investment.

Vanguard Total Stock Market ETF is also extremely cheap to own. When you hire someone else to invest your money, which is what you are doing here, you have to pay them. The fee for that is called an expense ratio when you are talking about ETFs or mutual funds. This particular ETF has an ultra-low expense ratio of just 0.03%, compared to 1% or more for some mutual funds. You will be hard-pressed to find anything that would cost less to own than Vanguard Total Stock Market ETF.

You'll be able to build for the future

Putting your $500 into Vanguard Total Stock Market ETF will give you a foundation from which you can learn and grow, money-wise and knowledge-wise. There are some potential downsides, though.

You will never outperform the market, because what you own is the market. And, depending on the broker you choose, you will have to pay commissions (a trading fee) every time you buy or sell shares of the ETF (some brokers offer free trades, so you might want to make sure you work with one of them).

Neither of these issues are insurmountable headwinds and, frankly, most investors would be better off if they just did as well as the market and focused more of their time and energy on saving money as hard and fast as they can. But, to do that and invest, you still need a solid investment foundation, and that's exactly what Vanguard Total Stock Market ETF can provide even for as little as $500.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard Index Funds - Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.

Got $500 to Invest in Stocks? Put It in This Index Fund. | The Motley Fool (2024)

FAQs

Can you make money in the stock market with $500? ›

Keep cash invested for 5 years or more

Time allows your money to grow and bounce back from short-term market fluctuations. The potential payoff: $500 invested at a 10% return for 30 years could grow to around $10,000 before inflation, 20 times your initial investment.

What stocks is Motley Fool recommending? ›

The Motley Fool has positions in and recommends Alphabet, Amazon, Block, Etsy, Meta Platforms, Microsoft, Netflix, Nvidia, Salesforce, Shopify, Tesla, and Vanguard Index Funds - Vanguard Small-Cap Growth ETF.

What is the best S&P 500 index fund? ›

Top S&P 500 index funds in 2024
Fund (ticker)5-year annual returnsExpense ratio
SPDR S&P 500 ETF Trust (SPY)14.5%0.095%
iShares Core S&P 500 ETF (IVV)14.5%0.03%
Schwab S&P 500 Index (SWPPX)14.5%0.02%
Vanguard 500 Index Fund (VFIAX)14.5%0.04%
4 more rows
Apr 5, 2024

How to invest in 500 index fund? ›

The simplest way to invest in the index is through S&P 500 index funds or ETFs that replicate the index. You can purchase these in a taxable brokerage account, or if you're investing for retirement, in a 401(k) or IRA, which come with added tax benefits.

Can the S&P 500 make you a millionaire? ›

If the S&P 500 outperforms its historical average and generates, say, a 12% annual return, you would reach $1 million in 26 years by investing $500 a month.

How much is $500 a month invested for 10 years? ›

What happens when you invest $500 a month
Rate of return10 years20 years
4%$72,000$178,700
6%$79,000$220,700
8%$86,900$274,600
10%$95,600$343,700
Nov 15, 2023

What stock will boom in 2024? ›

2024's 10 Best-Performing Stocks
Stock2024 Return Through April 30
Avidity Biosciences Inc. (RNA)166.6%
Trump Media & Technology Group Corp. (DJT)185.3%
Canopy Growth Corp. (CGC)191.2%
Super Micro Computer Inc. (SMCI)202.1%
6 more rows
May 3, 2024

What are the best stocks to buy for beginners? ›

Like Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Meta Platforms, Inc. (NASDAQ:META), Eli Lilly and Company (NYSE:LLY) is among the best beginner stocks to invest in today.

Which penny stocks to buy now? ›

Penny Stocks To Buy Today
Company NameLTP% Change
Kanani Industries3.55-4.05
Dynamic Cables Ltd557.9-3.64
Hilton Metal Forging1210.29
Alok Industries26.75-0.56
1 more row

Should I buy Spy or Voo? ›

If you are a cost-conscious investor, the VOO, IVV, and SPLG might make a more attractive option compared to SPY with their lower expense ratios. Conversely, you might appreciate the higher liquidity of SPY if you're an active or institutional trader.

Which index fund pays the most? ›

The Invesco S&P 500 High Dividend Low Volatility ETF has a 4.74% dividend yield, the highest among our recommendations, but its risk is average. Meanwhile, the iShares Core High Dividend ETF has a 4.09% dividend yield but an expense ratio of only 0.08%, much lower than the 0.3% ratio for the Invesco fund.

Which index fund gives the highest return? ›

ICICI Prudential Nifty 50 Index Fund-Growth is among India's top 10 index funds. It falls within the Large Cap Index category. Over the past year, ICICI Prudential Nifty 50 Index Fund-Growth has returned 15.09 percent. Since its inception, it has delivered an average annual return of 14.74 percent.

How do beginners buy index funds? ›

You can either open an account with the broker that offers the fund you want, or you can simply open an account with your preferred broker. Many of the major brokers offer their own index funds but they tend to largely track the major indices, so performance should be similar across brokers.

Which index fund is best for beginners? ›

For beginners, the vast array of index funds options can be overwhelming. We recommend Vanguard S&P 500 ETF (VOO) (minimum investment: $1; expense Ratio: 0.03%); Invesco QQQ ETF (QQQ) (minimum investment: NA; expense Ratio: 0.2%); and SPDR Dow Jones Industrial Average ETF Trust (DIA).

How much money do I need to start an index fund? ›

How much is needed to invest in an index fund? The minimum needed depends on the fund and your broker's policies. If your broker allows you to buy fractional shares of stock, you may be able to invest in index fund ETFs with as little as $1. If not, your minimum investment will be the cost of one share of the ETF.

Is it worth investing $500? ›

If you have $500 to get yourself started in investing, you need to think strategically. There aren't many mutual funds with $500 minimum investments, but ETFs are a different story. With $500, a good place to start is a broad-based equity ETF like Vanguard Total Stock Market ETF.

Is $500 enough to start trading? ›

Can you start day trading in the US with $500? Yes, there are many trading platforms that allow customers to begin trading with low sums.

Can you make $1,000 a month with stocks? ›

Over time you'll find that your investment portfolio's base capital can, indeed, grow to hit your target. Making $1,000 per month in dividends will take patient investing – whether you're buying stocks or funds – or a lot of up-front capital. But with the right mix of yield and patience, you can get there.

Can you make money with $100 dollars in stocks? ›

Investing your $100 can be pivotal in generating passive income, preparing for financial uncertainties, and achieving long-term goals. The magic of compound interest implies that even modest sums can snowball over time.

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