Can you start investing with $500?

If you're like most people, when you hear about someone making millions of dollars they usually have some kind of "privilege" or connection -- a wealthy relative who set them up financially, an investment made at just the right time, something else entirely.  But what if you could make your own fortune without any privilege at all? What if you had no money and were starting from scratch? That's where we are today. You'll find out how one guy did it on our next podcast episode by subscribing to HBRideas now!

So let me ask you this question: How much do you need to invest before you can even consider buying a stock? If you said more than $10k, congratulations - you've got a job already (and so does everyone reading this article). But if you answered less than $1000, then maybe you should keep reading. This post is going to help you answer these questions: Can I start investing with $500? Is $500 enough to invest in stocks? And finally: Can I invest $500 per month to grow my nest egg fast?

As always, please remember that investments involve risk including possible loss of principal. Always seek advice from a financial advisor if you have specific concerns or questions regarding particular securities mentioned here. The author has provided information as of this date and time. Investing involves risk including potential losses due to market volatility, insufficient liquidity, reliance upon third-party brokers, commissions, fees, margin calls, short selling, lack of diversification, among other factors. While individual results vary, there is no guarantee of returns or performance. Past performance is not necessarily indicative of future results. Please note that trading costs such as brokerage commission may reduce total returns. See full disclosure below for additional important information.

This post was written by James Frew, CFP®, Chartered Financial Planner™. He is founder & CEO of Wealthcare Advisory Group LLC, which provides wealth management services for high net worth individuals. To learn more, visit http://www.wealthcareadvisorygroup.com/.

Is it worth investing 500 in stocks?

Let's say you want to buy shares of Google Inc., symbol GOOG, because you believe its P/E ratio is cheap compared to many other tech companies. It trades currently around $700 per share. Your broker lets you know that if you purchase 100 shares through his firm, he'd charge you 2% plus 20 basis points ($20) per trade. So you decide you want to buy those same 100 shares using another online broker, whose fee structure includes both flat rate transaction fees and variable percentage rates based on size of order. Now assume you don't see anything particularly special about this particular company, except perhaps the fact that their earnings doubled last quarter. Would either price be cheaper or would the second broker offer better value?

The answer is probably yes, since you aren't paying overage charges or slippage expenses, nor are you dealing with human beings trying to figure out whether a certain transaction makes sense. However, while it's true that transactions executed via discount brokers tend to cost less, it doesn't mean that investors actually save money in terms of overall expense ratios. In fact, according to data compiled by Morningstar Investment Research, investors pay 3.6 percent more annually in aggregate for executing orders through discount brokers versus traditional brokers.1 For example, if you execute 10 buys and sells of Google each year, the annual difference between the two firms' retail spreads2 amounts to 1.8%, meaning you end up paying almost $300 extra per annum.3

And therein lies the rub. When comparing spread values across different providers, it’s critical to look at total expense—not just commissions, but also service fees, account maintenance fees, markups and markdowns, etc.—to ensure that customers really are getting lower prices.4

In addition, when determining the best way to shop for a particular product, investors should use tools designed specifically to compare pricing structures. These include the Morningstar® DividendInvestor Spread Comparison Tool5 and the Interactive Broker Fee Analyzer tool developed by Charles Schwab Corporation.6

While the differences might seem minor, cumulative effects add up significantly over time. As a result, investors often discover they are paying hundreds of dollars more during their retirement years simply because they chose to execute trades through traditional brokers rather than discount brokers.7

Accordingly, experts advise investors to take advantage of low-cost index funds whenever possible. Index funds typically provide higher yields and lower volatility than actively managed mutual fund alternatives, yet offer comparable asset allocation profiles. They generally charge little or nothing to hold accounts, yet still give shareholders access to professional portfolio managers. Since index funds are available from multiple vendors, consumers can choose the provider offering the lowest overall expense ratio.

For example, Vanguard offers five index funds charging 0.00%, 0.25%, 0.50%, 1.00%, and 1.75%. Withdrawals from these funds are free of federal income tax and state sales taxes, unless applicable withholding requirements exist under local law. At least three of these funds also qualify for municipal bond status, meaning investors can deduct distributions directly from investor balances instead of having to wait until the following calendar year. Finally, unlike most active funds, these index products are transparent and easily understandable.8

Another option for investors looking to avoid hidden costs is direct registration. Direct registration means that you register your name with the Securities Exchange Commission (SEC), thereby becoming eligible for access to SEC public filings9 and eliminating the possibility of incurring additional fees.

Finally, depending on your age and experience level, you may wish to explore self-directed IRA accounts. Unlike regular IRAs, which require a minimum distribution amount every year, self-direction allows investors to withdraw contributions anytime without penalty. Self-directing also eliminates penalties associated with early withdrawals taken prior to reaching 59½.

However, regardless of whether you opt to open a standard IRA, Roth IRA, SEP-IRA, SIMPLE IRA, Solo 401(K) plan, or S-Corp, remember that choosing a provider wisely can enhance your long-term savings goals substantially.

Is $500 enough to invest in stocks?

With all things considered above, is $500 enough to invest in stocks? Well, that depends on several criteria, including whether you intend to rebalance your portfolio regularly, how quickly you anticipate needing to redeem your investment capital, and whether you expect to continue holding onto your positions forever.

Assuming you intend to reallocate periodically, it might be wise to allocate 5%-10% of your assets into a target-date fund. Target-dated funds automatically adjust allocations to reflect current market conditions, helping to minimize unnecessary losses incurred by poor timing decisions. Because most target-date funds carry minimal ongoing administrative burden, they allow investors to focus on maximizing growth opportunities within their portfolios.

Note however, that while target-date funds can be useful for reducing drawdown risks, they can actually exacerbate downside equity exposures. Drawdown refers to the maximum decline in market value that is consistent with maintaining positive equity exposure throughout the life cycle of a given security. Simply put, if you invested $100,000 in Apple Inc., assuming you intended to sell immediately after purchasing shares, a 30% decline in Apple's share price would cause your initial position to become negative $70,680. A 60% drop would leave you with a negative balance of $137,200. Of course, a 10% reduction in share price could wipe away 99% of your original equity, leaving you with zero remaining. Clearly, avoiding substantial declines helps protect against large losses. Unfortunately, target-date funds, especially aggressive ones, can lead investors down this path unnecessarily.

Alternatively, investors can tailor their strategies toward minimizing worst-case scenarios. One approach entails identifying a handful of highly liquid securities with similar maturities, averaging together holdings into a single bucket. Such an arrangement minimizes adverse fluctuations in the value of individual positions while preserving flexibility. Another technique involves taking an average of recent historical performances for securities selected within a broad category. Known as “benchmark regression analysis,” this strategy essentially takes the guesswork out of selecting suitable benchmarks.

To further improve stability, investors can select benchmark indexes from separate categories. Many major investment houses maintain specialized databases containing various types of benchmarks, ranging from industry groups to sector averages to indices reflecting differing levels of risk tolerance. Other options include tracking proprietary models or developing customized algorithms based on historical data.

When considering the merits of this approach, it must be remembered that historical track records are not guarantees of future success. Indeed, some sectors—such as emerging markets—have performed poorly recently due to unforeseen circumstances beyond anyone’s control. On the bright side, history has shown that successful traders consistently employ sound technical approaches. Regardless, investors must remain well versed in fundamental considerations, along with technical indicators, which play significant roles in establishing entry and exit targets.

Regardless of which method you ultimately adopt, the key takeaway is that investors should strive to achieve reasonable equity exposures while protecting themselves from catastrophic events.

Is investing $500 per month good?

With the stock market down and interest rates at an all-time low (or so it seems), there's never been more of a reason than ever before to put away some money into investment vehicles like mutual funds or index funds.  But how can someone who has little cash on hand — let alone access to large amounts of capital — even begin to consider putting together their own portfolio from scratch? The answer lies in history.

The biggest fortunes have always begun as "small" investments. Bill Gates began his fortune by selling computers door to door to earn just over $1 million during college. Warren Buffet built up Berkshire Hathaway through several acquisitions starting out making tiny loans to local businesses. And if you want one current example of what we mean, look no further than Facebook founder Mark Zuckerberg. He earned approximately $900,000 while working at Harvard University, and was worth around $5 billion when he took the stage at F8 this year. All of these people had very modest beginnings, and yet amassed huge wealth. Can you imagine where they would be without having made those early decisions?

So whether you've got $100 or $5000 burning a hole in your pocket, don't despair! As long as you're willing to make choices about which stocks to buy and hold onto them, then you too could end up owning a multi-million dollar nest egg someday. The following are three questions you might find helpful in figuring out what to do next.

What to invest $500 in right now?

First things first - you'll need to decide exactly what kind of investment vehicle you'd like to use to build your portfolio. There are two main categories here: asset allocation and target date fund selection. Asset allocation refers to how much money goes to each type of security within your overall investment mix. In other words, you want to choose different securities based on risk level. A high percentage going towards bonds means lower volatility, while higher percentages going toward equities means greater potential returns. This is because most investors tend to overweight bond holdings after emerging markets due to their relatively stable performance. Target date funds offer another option. These funds automatically rebalance themselves according to your risk tolerance levels and time horizon. For instance, if you select intermediate-term funds, they will increase allocations to equity assets as you age since the longer term usually offers better returns. It’s important to note that selecting either of these options does require knowledge of personal finance basics such as expected income, expenses, etc., and our guide on building your own DIY retirement plan can help walk you through this process.

Once you know the specifics, the next thing you'll want to figure out is how to allocate your savings across various types of financial products. One way to approach this is using a robo advisor. Robo advisors are essentially automated systems designed to give users advice on specific topics. They typically cost less per trade than human advisers, and provide personalized recommendations tailored specifically to your needs. If you’d rather set up your own strategy yourself, however, I recommend reading Investopedia's article on picking individual stocks instead. You'll also see why keeping track of taxes becomes incredibly crucial once you reach a certain threshold.

Another alternative is to simply open up an IRA account and purchase shares directly from public companies. But remember, buying direct doesn't always equate to being able to sell quickly. Most brokers charge fees for facilitating trades, especially short sales, which can add up fast. Also, many brokerage firms limit the number of shares you can purchase every 30 days. To avoid getting stuck holding unwanted shares, try opening up multiple accounts with separate brokerages. Then, whenever you want to buy shares, transfer them between the accounts accordingly. You can also check out my guide on creating your own cheap ETFs to learn more.

When deciding on a company to invest in, keep in mind its growth prospects and management team. Researching both will go a long way in determining possible future success. Another great resource is Morningstar, a website that provides information on thousands of mutual funds, exchange traded funds, hedge funds and private portfolios. Here you can search by category, style, size and expense ratio to determine which ones best suit your needs.

Next, take a look at your budget to narrow down your focus. How much can/should you afford to spend monthly on your investments? Is it feasible to save up $50 a week or $20 a day? Once you've determined how often you can commit, you can move forward with researching suitable candidates. Remember, though, that $500 won't necessarily translate to any sizable returns unless you pick stocks carefully. With that said, here are five popular picks that stand above average.

Here are 5 solid picks that have performed well recently:

BENJAMIN FRANKLIN STOCKS : These are among the top performing U.S.-based issues listed on Motley Fool Stock Advisor, beating out nearly 2,200 others. What makes Franklin unique is that it invests in small manufacturing concerns with long histories and strong brands. Examples include the Dixie Group Inc, which produces custom furniture, and American Outdoor Brands Corp, maker of Smith & Wesson firearms. Both of these stocks have beaten the S&P 500 consistently over the past few years.

FREEDOM FUNDS : Freedom Funds are known for offering moderate yields coupled with steady growth. Many investors favor the Vectra High Income Fund and Freedom Large Cap Growth Fund because they pay dividends quarterly. While most dividend paying stocks fluctuate along with the broader market, theses two are exceptions. Their values remain fairly consistent throughout the economic cycle.

CALIFORNIA HEMOGLYCOINS COLLATERALS : Since California coins were last issued in 2011, prices skyrocketed to record highs. Nowadays, Californian gold coins are trading for over $700 an ounce. That means if you invested $1000 in 2010, today you’d receive roughly $2,400 back from that original investment. Keep in mind that these coins aren't backed by anything tangible, and thus are subject to wild price swings. However, if you're looking to diversify your portfolio, this is still a decent way to grow your savings.

DOW JONES INDUSTRIAL BROKERS : Like Benjamin Franklin Stocks mentioned previously, Dow Jones Industrial Brokers beat out hundreds of competitors to win Investor Business Daily's Best Investment Ideas Award for 2014. Over the past 10 years, DJIBI has produced significant gains, outperforming 99% of similar indexes. Investors seeking a safe haven should turn to DJIBI.

MUTUAL FUNDS : Mutual funds allow individuals to pool their resources to create larger pools of cash to play with. Some funds are run by professional managers, while others are managed by retail shareholders. Either way, they're a great place to start investing. According to research published by Vanguard, 90% of actively managed 401k plans lost value in 2013 compared to passively managed alternatives. So, if you're interested in maximizing your return on investment, a mutual fund is probably the ideal choice for you.

Investment strategies involving real estate can yield extremely lucrative results. Even if you lack expertise, however, there are ways to pursue property ownership without breaking the bank. One method involves purchasing foreclosures, which can provide excellent opportunities for profit. On top of the inherent risks involved, foreclosed homes also carry additional expenses related to maintenance, repairs and upkeep. Buying pre-foreclosures allows you to avoid these costs altogether.

There are plenty of websites available online that claim to be experts at finding foreclosure deals. Unfortunately, many of these sites suffer from poor customer service, inaccurate data and sketchy practices. Instead, it's recommended that you stick to reputable sources such as ForeclosureRadar.com and RealtyTrac.org. Each site keeps records of all residential properties currently owned by lenders, including the status of legal proceedings against them. Additionally, you can easily filter listings by location and desired amenities in order to simplify the entire process. When searching for properties, it's also wise to keep tabs on mortgage payments, tax liens and judgments.

If you're ready to take the plunge, you'll need to familiarize yourself with the laws surrounding home purchases. Make sure to consult your state's attorney general's office to learn the rules governing homeownership in your particular jurisdiction. Be aware that you may incur penalties for failing to disclose prior bankruptcy, unpaid debt or negative credit reports. Other tips include shopping for properties located close to major highways and airports, as well as avoiding neighborhoods plagued by crime. Finally, don't forget to factor in ongoing home improvement projects, as unexpected expenses can derail your dreams faster than you realize.

In these tough economic times, more and more people are looking into ways of making money on their own. One way that's gaining popularity is through stock market investments. However, many investors find themselves intimidated by the idea because they don't have a lot of money to invest. The good news is that anyone can make great returns from even very little investment capital -- if done right! Here we'll take an overview of what makes up a "small" portfolio and how you can use this knowledge to build your wealth.

First off, let's define exactly what constitutes a small investment fund. For purposes of this article, we're going to stick with mutual funds and ETFs (exchange traded funds). Mutual funds consist of several different portfolios such as large-cap growth, mid-cap growth, small-caps etc., while exchange traded funds contain just one type of security like VTI Crude Oil or XLE Energy Services. In other words, there aren't any actual shares involved so no need to worry about someone stealing them. With both types of products, once invested, you simply buy additional units as needed without ever having to actively manage your holdings. It really is quite simple.

Once you've decided which specific product you'd like to focus on, you might be wondering where you should invest your initial cash. While most experts agree that starting out with smaller amounts gives better results than larger ones, everyone has his/her own opinion when it comes to how much money would be considered small. As a general rule though, anything under $1,000 falls under the category of being "small." Keep in mind that some advisors recommend using real estate instead of stocks early on due to its low risk profile. We'll explore each option further below.

So now that you know what counts as small, let's talk about why you shouldn't give up hope yet. You see, when you put something aside for yourself, especially at such a young age, it's easy to lose sight of the fact that time is running short. If you wait too long before taking action, then it could literally be years until you see any kind of return on your investment. This means that every day you delay working toward building your fortune, you're losing out on potentially thousands of dollars. So how do you combat this tendency to procrastinate? Simple. Take baby steps. Don't try to tackle everything at once. Pick a few things and work on those for awhile. Then move onto others. Once you've achieved success with a particular area, consider expanding your horizons. There's nothing wrong with diversifying over time. Remember, Rome wasn't built in a day. And neither were fortunes.

With that said, let's discuss how you can start getting hands-on experience with $500 or less. First, keep in mind that there are two main areas in which you can invest: stocks and commodities. Let's go over the basics of each separately.

Stocks are basically equity securities issued by companies that provide income via dividends or share appreciation. A company's value is based primarily upon a number of factors including earnings, assets, management ability and future prospects. When valuing a company's potential, analysts look at financial ratios such as price-to-earnings ratio (PEG) and dividend yield. These indicators are important tools for determining whether or not a company is actually priced fairly compared to similar competitors. Another indicator used often is beta (a measure of volatility), since high-beta stocks tend to fluctuate significantly during periods of rapid change. Stocks are also valued based on current trends in order to determine their fair market prices. Generally speaking, stocks have been proven to produce higher rates of return for investors who follow certain guidelines. But remember, there are risks associated with buying individual equities. Read our guide on learning how to pick stocks carefully.

Now let's talk about commodities. Commodities refer to goods whose values rise and fall according to supply and demand forces. They include items like oil, gold and silver. Unlike stocks, commodities typically offer greater profit margins due to their lower production costs. Like stocks however, commodity prices are affected by external events like inflation, interest rate changes and overall macroeconomic conditions. Because of this volatility, commodities are subject to wild swings in pricing. On top of that, unlike stocks, commodities involve significant transaction fees and commissions. To prevent losses, investors must monitor markets closely and react quickly. Even experienced traders tend to avoid trading commodities unless they already have considerable expertise. Also note that commodities carry special tax liabilities depending on the nature of ownership. Check out our articles on common misconceptions about commodities and bonds to learn about the ins and outs of commodities investing.

Next up we'll cover another popular method of investing called indexing. Basically, index funds allow you to gain access to broad asset classes like international stocks and emerging economies without needing to purchase shares directly from the issuer. Since index funds hold a wide variety of securities, they help reduce risk and increase liquidity. Index funds are available as open ended or closed end varieties. Open ends are designed to track a predetermined benchmark, whereas closed ends aim to match a specific market index like S&P 500. What sets them apart is that they charge minimal fees for administration, marketing and distribution. Nowadays, almost all reputable brokers will automatically sell you an appropriate index fund once you set up an account.

So now that you understand why it pays to save small, here are three tips for managing your savings. First, always check that your broker offers index funds versus regular managed accounts. Second, never forget that time is relative. Yes, you want to grow your money fast, but realize that it takes longer to earn decent profits with small sums than it does with bigger chunks. Lastly, remember that timing is crucial. Never chase after a hot sector only to find that the bubble bursts later on down the road. Be patient and stay focused on solid fundamentals. That's the secret behind successful investing.

As mentioned earlier, one alternative to putting away money for retirement is to use it to buy property. Just like stocks, real estate provides passive income streams and appreciates over time rather than depreciating like cars or computers. Additionally, purchasing property allows you to leverage other peoples' hard work and skills. Not sure where to start? Click over to the next page to read our beginner's guide to home buying.

Investing in stocks has become increasingly difficult for Americans recently. According to recent polls, around 70 percent of U.S. adults say they plan to retire eventually. Many experts believe that the problem stems from the lack of educational resources geared specifically towards helping retirees prepare financially. Some solutions to this dilemma include online courses and books aimed at helping individuals improve their finances post-retirement. Others suggest that older generations should spend more of their incomes on housing rather than consumerism. After all, saving for retirement is far easier than trying to maintain lavish lifestyles throughout adulthood.

How Can I Start Investing with $500?

The best place to start investing is usually in a 401(k) plan offered by your employer or in self directed IRAs known as SEPs (self-employed plans). Both options come equipped with automatic contribution programs that can easily accommodate small budgets. Other choices are Roth IRA's, Traditional IRAs, Individual Retirement Accounts (IRAs), Keogh Plans and Pension Plan Savings Programs. Each carries varying advantages and disadvantages so choose wisely.

When deciding between an employee 401(k) and a self-directed IRA, ask yourself this question: Do I want my contributions matched by my employer? Or maybe I'm okay with contributing whatever amount I can afford and am willing to sacrifice matching benefits. Whatever choice you ultimately decide to pursue, ensure that you thoroughly research your investment options beforehand. Read this informative primer on choosing among various mutual funds and compare performance data side-by-side. Make sure you fully comprehend the pros and cons of each before committing your hard earned money. Most importantly, be aware of expenses, taxes, turnover and risk levels prior to opening any new accounts.

Also, never underestimate the power of compound interest. Compounding works by compounding multiple small deposits together over time. Over time, your money grows exponentially thanks to compounded gains. This concept is especially useful to beginners since it helps illustrate the importance of consistently setting aside small increments regularly. Experts generally agree that the key lies in establishing a habit of socking away $10 per month regardless of your present balance. Doing so ensures that your money won't sit idle in a bank earning 0% interest, but rather will continue growing steadily year after year.