How to Start Investing With $500 or Less

The thing keeping most people from investing isn't money. It's the belief that you need more of it before you can start. That belief is wrong, and it's expensive — because the years you spend waiting are years your money isn't compounding.

$500 is enough to open a brokerage account, buy a diversified index fund, and establish the pattern of adding money on a schedule. That last part — the pattern — turns out to matter more than the starting amount. Someone who puts in $100 a month starting at 25 will almost certainly end up with more money at 65 than someone who puts in $5,000 at 40 and then stops. The math on time is relentless.

So here's what to actually do with $500.

Open the Right Account First

Before you buy anything, decide where the account is going to live. For most people starting out, the answer is a Roth IRA — not a standard taxable brokerage account.

A Roth IRA lets you contribute after-tax money — up to $7,000 per year in 2024 and 2025 if you're under 50 — and withdraw both contributions and growth completely tax-free in retirement. You already paid tax on the money going in; there's no tax bill on the way out. Compare that to a traditional brokerage account, where you'll owe capital gains taxes on earnings every year you realize them. For someone with a long time horizon and a lower income today, the Roth structure is genuinely valuable.

The income limits for a Roth IRA phase out starting at $146,000 for single filers and $230,000 for married filers in 2024 — so this isn't a constraint most people starting with $500 need to worry about. If you earn more than those thresholds, open a taxable brokerage account and keep reading.

Fidelity, Vanguard, and Schwab all offer Roth IRAs with no minimum deposit and no account fees. Any of the three is a reasonable choice. Fidelity's interface tends to be the most beginner-friendly; Vanguard has historically been the home of low-cost index fund investing; Schwab splits the difference. Open with whichever one you'll actually use.

What to Actually Buy

You have two practical choices for a first investment at this level: a total market index fund or a target-date retirement fund. Both are low-cost, broadly diversified, and appropriate for someone starting out.

A total market index fund — Fidelity ZERO Total Market Index (FZROX), Vanguard Total Stock Market ETF (VTI), or Schwab Total Stock Market Index (SWTSX) — owns a slice of essentially every publicly traded company in the United States. When the market goes up, your investment goes up proportionally. When it falls, so does the value of your account. The expense ratios on these funds are extremely low: FZROX charges literally zero; VTI and SWTSX charge 0.03% annually — three cents per year on every $100 invested.

A target-date fund is a single fund that holds both stocks and bonds, adjusts its allocation automatically as you approach the target retirement year, and requires essentially zero maintenance. If you plan to retire around 2055, you'd buy the 2055 target-date fund. The expense ratios are slightly higher than a pure index fund — typically 0.10 to 0.15% — but the simplicity is worth it for people who want a complete, self-managing portfolio in one purchase.

Either is fine. What matters is that you pick one and buy it rather than researching for six months and buying nothing.

Fractional Shares and Minimums

One practical question for anyone starting with a small amount: what if the fund or stock you want to buy costs more than you have?

All three major brokerages now offer fractional shares, which let you invest a dollar amount rather than a whole share quantity. If VTI trades at $240 per share and you want to invest $100, you buy 0.41 shares. The fractional share earns dividends and appreciates proportionally. There is no functional difference between owning 0.41 shares and 1 share from an investment perspective — just a smaller slice of the same thing.

Mutual fund minimums are a slightly different issue. Vanguard's Admiral Shares index funds carry a $3,000 minimum. But Vanguard's ETF equivalents (like VTI) have no minimum beyond one share — and with fractional share investing, effectively no minimum at all. If you're working with $500, go with the ETF version. You get the same underlying holdings.

Set Up Automatic Contributions

The most important thing you can do after your first purchase is automate the next one. Set up a recurring transfer from your checking account to your investment account — $50 a month, $100 a month, whatever is realistic — on a fixed schedule.

This does two things. First, it forces consistency — you're investing regardless of whether the market is up, down, or flat that month. Second, it takes advantage of dollar-cost averaging: you're buying more shares when prices are low and fewer when prices are high, which tends to produce a favorable average cost per share over time compared to trying to time your purchases.

To illustrate what this looks like in practice: $100 per month invested in a total market index fund from age 25 to 65, assuming a 7% average annual return (roughly the historical average after inflation), grows to approximately $262,000. The same $100 per month starting at 35 instead of 25 grows to about $122,000. That $14,400 difference in contributions — a decade of $100 payments — translates to a $140,000 difference in ending value. The lost decade costs more than the contributions themselves.

What Not to Do With $500

Individual stocks. Picking a single company to invest $500 in is not diversification — it's a concentrated bet. Even well-run companies with strong fundamentals go to zero. The research required to genuinely evaluate individual company financials is substantial and time-consuming. For most people starting out, the risk-adjusted return of an index fund beats stock-picking over time, and it requires none of the ongoing research.

Crypto as a first investment. Crypto may belong in a diversified portfolio at some small allocation — 1 to 5% — once you have a real investment foundation. It does not belong as a first investment for someone starting with $500. The volatility is extreme: Bitcoin dropped more than 60% in 2022 alone. For a starting investor with a small account, that kind of drawdown can end the habit before it starts.

Robo-advisors with high fees. Betterment and Wealthfront are legitimate products that do what they claim — but they charge 0.25% annually in management fees on top of the underlying fund costs. That's not outrageous, but it's meaningful over decades. If you're willing to buy a single index fund or target-date fund yourself, you can replicate what a robo-advisor does for almost nothing. The added fee is paying for the convenience of someone else making a choice you could make yourself in about ten minutes.

If You Have Employer Matching First

One thing worth flagging before you open a Roth IRA: if your employer offers a 401(k) with any matching contribution and you're not capturing all of it, start there. Employer match is an immediate 50 to 100% return on every dollar contributed up to the match limit. No index fund produces returns like that. A 50% match on the first 6% of your salary means that $500 of your own contributions becomes $750 before a single market day passes.

Capture the full employer match in your 401(k) first. Then open the Roth IRA. Then return to the 401(k) if you have additional capacity. That sequence, in that order, is the most efficient allocation for most people starting out.

Open the account this week. Fund it with whatever you have — even $100 is a start. Buy a total market index fund or a target-date fund. Set up a recurring monthly contribution. Then leave it alone. The single most destructive thing new investors do is check their account balance too often and react to short-term moves. The portfolio you build starting at $500 and don't touch will significantly outperform the one you actively manage based on market news.