If you have $500 to invest in stocks, you've come to the right place.
While investing in stocks has proven to be one of the best ways to grow the value of your savings over the long term, no one has a crystal ball in the short term. It's always a good idea not to invest money you'll need in the next three to five years.
That said, let's look at where you can invest $500 today.
If you want to keep it simple...
We'll get to specific stocks in the next section, but here's a quick review of the benefits of investing in a low-cost index fund.
Buying shares of an index fund like the Vanguard S&P 500 ETF (NYSEMKT:VOO) is the best option if you want to see your money grow in value over the long term but want to keep things very simple. Some people don't like the volatility that can come with individual stocks. Plus, investing in an index fund provides instant diversification across some of the best companies in the world. In fact, Warren Buffett has recommended index fund investing for most investors.
Over the years, I've often been asked for investment advice, and in the process of answering I've learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.
-- Warren Buffett's 2016 Berkshire Hathaway shareholder letter
Historically, the market has returned about 10% per year with dividends reinvested, and that's all you need to become a millionaire with a small monthly investment. If you invest $500 per month for 30 years at 10%, that small seed will turn into $1.1 million.
Invest in growing companies
With growth stocks, the rewards can be much higher. For example, if you had invested $10,000 in Netflix 10 years ago, your investment would be worth $285,000 today. Netflix was a small company back then, but even if you had invested in an established brand like Apple, you could have turned $10,000 into $107,000.
The legendary investor Peter Lynch advocated investing in companies you're familiar with. By investing in companies whose products you already use, you are in a position to understand what makes a company tick as well as, if not better than, seasoned professionals on Wall Street.
Two markets that just about everyone is familiar with are streaming and online shopping. Both markets are experiencing strong growth and provide a ripe field in which to look for promising growth stocks.
Disney (NYSE:DIS) is quickly emerging as one of the leading streaming providers in the world with Disney+, Hulu, and ESPN+. The House of Mouse had a rough go during the coronavirus pandemic as its theme parks shut down. But with the parks starting to reopen, now might be a good time to consider buying shares. Disney+ had 54.5 million subscribers as of May 4, and there are still several regions, such as Latin America, where the service hasn't launched yet.
Spotify Technology (NYSE:SPOT) is a leader in audio streaming, with 286 million monthly active users. It not only continues to attract new users at a rapid clip, but it's also expanding into exclusive podcast content, which management believes will increase engagement on the Spotify platform.
E-commerce was already a fast-growing market before COVID-19, but the pandemic seems to have accelerated that shift. Two stocks I like here are Stitch Fix (NASDAQ:SFIX) and PayPal Holdings (NASDAQ:PYPL).
Stitch Fix is revolutionizing how people shop for clothes by using data science to deliver a highly personalized styling service. Despite experiencing disruption with fulfilling orders during the crisis, the online styling service still grew its active clients by 9.1% year over year, bringing the total to 3.4 million. By late April, Stitch Fix experienced the highest level of auto-ship retention in the last three years. With just $1.7 billion in revenue, this is a relatively small company with a lot of headroom to grow over time.
PayPal has become a dominant force in online and mobile payments, with 325 million customer accounts. Net new active accounts hit a record in April, increasing by 140% over January and February levels. During the shelter-in-place period, PayPal started to see people use the Venmo app in new ways, such as donating to charities, buying goods at farmers' markets, and paying yoga instructors. PayPal has grown consistently over the years and should remain a rewarding investment as more people migrate to digital payments.
Take advantage of fractional shares
You don't have to sacrifice diversification by investing in stocks over an index fund. Several brokers are starting to offer fractional share trading, including Square's Cash app and the Robinhood app, so you could invest $1 in each of 500 stocks, if that floats your boat.
There is no secret formula to build wealth with stocks. The most important thing is to ignore the daily movements of the stock market and think about where the company you own shares of is headed over the next 10 years. If you consistently invest in great companies and let time be your friend, you'll end up with good results.