Is $500 enough to get started when investing in shares?

Getting started with investing can seem overwhelming, especially when you don’t know where to begin. 

For example, is $500 enough? If you’re investing in the ASX (Australian Securities Exchange), you generally need this as a minimum.

So, let’s have a look at what you can do with $500.

What can I do with $500 when investing?

If you value diversification, which many experts suggest is important, then investing $500 in a managed fund or ETF (exchange traded fund) might be a preferable option.

ETFs have become increasingly popular among new investors because they spread the investment across multiple companies, sectors, or even entire markets. For example, buying into an ETF tracking the ASX 200 would give you exposure to Australia's 200 largest companies. This approach can help minimise risk while providing broad market exposure.

Alternatively, you may want to invest in single stocks. However, it's important to make sure that you do sufficient research before committing any cash. If you're investing in the ASX, you'll have to keep in mind the minimum investable amount. So, with only $500, you're generally only going to get one company's shares!

If you're investing in the US stock market, you usually don't have the large minimum trades. You also have the ability to buy fractional shares. This has revolutionised small-scale investing, as you can now own a portion of high-priced stocks like Amazon or Google with just $500, or less.

Investment options to consider

Beyond traditional stocks and ETFs, your $500 could also be invested in:

1. Micro-investing platforms: Micro-investing apps allow you to start with even smaller amounts and automatically invest your spare change.
2. Listed Investment Companies (LICs): Similar to ETFs, these offer diversification but are actively managed and may focus on specific investment strategies.
3. Dividend Reinvestment Plans (DRPs): Some companies allow you to reinvest your dividends to purchase additional shares, often at a discount and without brokerage fees.

Should I wait to invest a larger amount?

Just like with savings, the major benefits of compound interest come from regular deposits and time. So, if anything, a dollar cost averaging strategy where you contribute a regular portion of your income can be helpful.

What's more, the $500 minimum for ASX shares is generally for your first time buying the share, with all subsequent minimum investments needing only to be the price of the share, plus brokerage fees.

However, if you're looking to invest in a couple of shares on the ASX at once, you may want to hold off until you have saved up enough. Also remember that time in the market is also important.

Cost of investing

Before deciding whether to invest now or wait, consider these key costs:

• Brokerage fees: These can range from $0 to $30 per trade on the ASX, making a significant impact on small investments
• Platform fees: Some providers charge monthly or annual fees
• Management fees: For ETFs and managed funds, these typically range from 0.1% to 1% annually
• Foreign exchange fees: If investing internationally, currency conversion fees may apply.

How can a small amount add up over time?

The money you earn from shares (dividends) or a savings account (interest) can build up with time. Over time, tiny gains can compound into big leaps.

To put this into perspective, let's look at a practical example. 

If you invested $500 in an ETF earning an average 8% annual return and contributed just $50 monthly:

• After 5 years, you'd have approximately $4,469
• After 10 years, you'd have about $11,084
• Then at 20 years, you'd have around $37,966

Keep in mind that, even if you're regularly contributing only a small amount every pay cycle, this can still help to compound the growth (or the repeated addition of earnings to the principal you invested). For this reason, it's important to make sure you're budgeting properly.

Make the most of a smaller investment

To make the most of your initial $500 investment:

• Set up automatic regular contributions, even if they're small
• Reinvest all dividends when possible
• Keep investment costs low through careful platform selection
• Maintain a long-term perspective despite market volatility
• Consider tax-efficient investment strategies, such as using a salary sacrifice arrangement.

Where can I invest $500?

When looking to invest, be sure to choose the right platform for you. Part of this is making sure that there are low or no account fees and making sure that your brokerage fees aren't too bad. Some platforms even allow for no brokerage fees on certain markets like US shares.

Modern investment platforms

With the rise of the internet and smartphone apps, investing has evolved to become easier and more convenient than ever before. 

Some of the options you can choose between include:

Traditional brokers

• Offer full-service trading capabilities
• Usually have higher fees but provide research and advice
• Examples include CommSec and NABtrade

Online brokers

• Provide basic trading functionality at lower costs
• Often offer educational resources and basic research tools

Micro-investing platforms

• Allow investments with very small amounts
• Often include automated features like round-up investing

Choosing the right platform

Consider these factors when selecting your investment platform:

• Brokerage fees and other costs
• Available markets (ASX, US, etc.)
• Research and educational resources
• User interface and mobile app quality
• Customer service and support
• Account security features
• Additional features like dividend reinvestment plans.

Keep these factors in mind when looking for a brokerage platform, as comparison can help you to find the account that works for you. 

How to choose a platform

When looking to invest, be sure to choose the right platform for you. Part of this is making sure that there are low or no account fees and making sure that your brokerage fees aren’t too bad. Some platforms even allow for no brokerage fees on certain markets like US shares. 

Keep these factors in mind when looking for a brokerage platform, as comparison can help you to find the account that works for you. At Mozo, we have dozens of share trading platforms you can compare so that you get the share trading platform that works best for you.