How to invest your first $500 to build wealth for the future, according to financial experts

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  • How you invest your first $500 depends on your goals and your personality.
  • Investing in an exchange-traded fund or index fund can be a low-cost option for new investors.
  • Investing consistently over time is more important than making a huge initial investment.
  • Read more stories from Personal Finance Insider.

You keep putting off investing because you think you haven’t saved enough money yet, you’re convinced you don’t have the time to do it, and you’re not sure where to begin. But getting started with investing is a lot easier — and a lot less costly — than you might think.

How much money should you have available before you start investing?

You don’t need to put away thousands of dollars before you start investing. Personal finance expert Lynette Khalfani-Cox, CEO of The Money Coach, recommends new investors start with $250 to $500.

“This would give them a good foundation from which they can start building a more robust portfolio,” Khalfani-Cox said.

That said, these days you can get started with much less if needed.

“A lot of times now you can buy shares starting as low as $50, which is really great for new investors,” said Lauren Pearson, a financial planner and co-founder of The Wealth Edit, an online membership-based community for women looking to learn more about personal finance.

You can also buy partial or fractional shares.

“If you’re a fan of a particular stock but the stock prices are $100 and you only have $50, you can buy partial shares,” Pearson explained.

Emily Lassiter, who co-founded The Wealth Edit with Pearson, stressed that you shouldn’t wait until you hit a “magic number” in your savings account before you start investing.

“We always say that really the most important thing is that they actually start,” Lassiter said.

What are the best ways to invest your money?

How you invest your money will depend on why you’re investing in the first place.

“You should always tie your investing strategy to your overall personal and financial goals,” Khalfani-Cox said. “That means you’ll take into account not only your financial objective — like needing the money to pay for college or retirement down the road — but also your time horizon.”

Khalfani-Cox is a big fan of new investors starting with an ETF (exchange-traded fund) or index fund instead of investing in individual stocks.

“Even though people may be tempted to find the latest ‘hot stock,’ novices should stay away from individual stocks as their very first foray into the stock market,” she said. “A low-cost passive index fund that tracks an index like the S&P 500 will give a person broad exposure to the overall stock market and good diversification.”

If you do decide to invest in individual stocks at some point, Lassiter says this can be a useful way to learn more about the market and can even be fun if you’re investing in products you regularly use. If any of your individual stocks begin to increase in value considerably or you decide to change your investment strategy at any point, Pearson recommends turning to an advisor for help. 

No matter how you choose to invest, you should take into account your personality as much as your goals.

“It’s important to know what you can and can’t stomach,” Khalfani-Cox said. “There’s no point in buying investments that will keep you up at night and cause you so much anxiety that you can’t sleep, or you need to constantly watch the ups and downs of the stock market every day.”

Most brokerage firms offer risk assessment questionnaires that will help you determine which investment strategy is right for you.

How should you plan to invest long-term?

Ultimately, that first $500 you invest isn’t as important as what and how you’ll invest in the future.

“What’s more important is a commitment to consistently invest over time,” Khalfani-Cox said.

Lassiter and Pearson recommend setting up automatic contributions to your investments if your budget allows for it, and they encourage their clients to work up to investing 20% of their take-home pay — even if that means increasing contributions 1% at a time.

All in all, the goal is to get started and keep going.

“With this approach, it doesn’t matter if you can afford $25 a month, $250, or $2,500,” Khalfani-Cox said. “Whatever the case, you grow a healthy pot of money if you keep investing for the long haul.”

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