Money Management

A $500 investment could go far over time. Read on to see where to put your money. 

Many brokerage accounts today don’t impose an investment minimum to open an account. So technically, you could open a new account with $40 and start putting your money to work. You don’t need thousands of dollars to begin investing.

But what if you have $500 to work with, and you don’t expect to have access to more cash than that for quite some time? While $500 isn’t a negligible sum, it’s hardly a fortune.

The good news is that you can do quite well for yourself with $500 if you invest your money in a savvy manner. Here are three options worth looking at, especially if you’re new to investing.

1. Buy shares of an S&P 500 ETF

ETFs, or exchange-traded funds, allow you to buy a whole bunch of different stocks with a single investment. They’re a good bet when you’re a new investor who’s not quite sure how to research stocks individually.

There are different types of ETFs you can put money into. Many ETFs are sector-specific so you can, for example, buy shares of an energy ETF or healthcare ETF. But a good bet when you’re starting out and are limited to $500 is to buy shares of an S&P 500 ETF. An ETF like that will basically aim to match the performance of the S&P 500 index.

Meanwhile, that index, which is generally used as a benchmark for the stock market’s performance as a whole, has delivered an average annual 10% return over the past 50 years. So if you were to invest $500 in an S&P 500 ETF today, sit back, and do nothing for 30 years, you might grow that $500 into more than $8,700.

2. Buy fractional shares of a few different stocks

Building a diversified portfolio is important. But that’s a tricky thing to do when you only have $500 to invest with. Fractional shares, however, can come to your rescue.

Many brokerages today allow investors to load up on fractional shares, and what you’re doing here is buying a portion of a share of various stocks instead of full shares. For example, it may be that a given company’s share price is $250. Buying a full share would mean that half of your portfolio is invested in a single business, and that’s not great.

With fractional shares, you could, in this situation, buy $50 worth of that company and $50 worth of nine others. That way, you have 10 different stocks in your portfolio.

3. Buy shares of dividend stocks and reinvest as those payments come in

It’s more than possible to buy a variety of stocks with $500. And one thing you may want to look out for is whether the stocks you’re interested in pay dividends.

It’s not a good idea to buy stocks solely because they pay a generous dividend. But if you find quality businesses you’re interested in investing in and they happen to pay dividends, you can set yourself up to grow your portfolio over time.

Most brokerages allow you to set up an automatic investment plan for your dividends so that when they hit your account, they get reinvested immediately. It’s a great way to keep investing when you don’t have such easy access to extra money.

You should also know that you can buy dividend stocks on a fractional basis. In that case, your dividend payments will be proportional to the amount of stock you own. If a given company is paying a $4 dividend per share, for example, and you own a quarter share, then you’d get a $1 dividend payment.

Many people who eventually grow large investment portfolios have to start small. The good news is that you can do a lot of great things with $500, and the sooner you start, the better.

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Warren Buffett, is still buying Treasury bills despite recent economic instability and downgrade. Learn how you can apply his strategies to your own portfolio! 

It is no secret that the U.S. government has experienced some economic setbacks over the years, causing some investors to question the safety of certain investments. However, despite the recent Fitch downgrade of the U.S. government’s credit rating, Warren Buffett, the CEO of Berkshire Hathaway, continues to buy $10 billion of Treasury bills each week.

Here’s why the “Oracle of Omaha” is still buying Treasury bills and why he believes they still are a safe investment option.

Not concerned with Fitch downgrade

In August, credit rating agency Fitch downgraded the U.S. government’s credit rating from AAA to AA+. Fitch’s decision was driven by a long-standing decline in governance standards, especially with the rising government deficits and surge in debt.

Buffett is known for his ability to make sound investment decisions and he has invested heavily in Treasury bills over the years. According to Buffett, he is not concerned about the recent Fitch downgrade and sees no reason to worry. Although he said Fitch raised some valid points, Buffett remains confident in the safety of Treasury bills.

U.S. dollar still the reserve currency

Another reason Buffett is not concerned about the Fitch downgrade is that he believes the U.S. dollar will remain the reserve currency of the world. The U.S. dollar has been the world’s reserve currency for decades and continues to hold that position today. While some experts have predicted a shift toward other currencies, according to Buffett, the reality is that the dollar’s dominance remains unchallenged.

Its stability, liquidity, and widespread use in international transactions make it the preferred choice for central banks and governments worldwide. Moreover, the global uncertainty and economic instability caused by the COVID-19 pandemic increased demand for the U.S. dollar as a safe haven asset.

Berkshire’s barbell investing approach

Berkshire Hathaway’s approach to investing, known as the “barbell strategy,” has become increasingly popular among investors in recent years. This technique involves balancing high-risk, high-return investments with more conservative, stable investments, creating a portfolio that can withstand market fluctuations.

The high-risk investments can potentially produce significant profits, while the stable investments provide a safety net to minimize potential losses. Buffett, for instance, implements the barbell strategy through investments in cash and equities.

Berkshire Hathaway holds a significant portion of its $147 billion cash and equivalents in T-bills, with over $120 billion invested in T-bills as of June 30. Berkshire currently buys Treasury bills at the weekly government auctions of three-month and six-month bills and rolls over its maturing T-bills by continuing to purchase new ones. Berkshire Hathaway’s equity portion of the investment portfolio totals approximately $350 billion with about half of that in Apple (AAPL).

While Buffett doesn’t like long-term Treasury bonds, he sees T-bills as a safe investment option that offer high security and liquidity. By continuing to buy $10 billion in U.S. Treasuries each week, he is further strengthening his investment portfolio and diversifying his holdings.

Buffett’s continued investment in Treasury bills serves as a testament to their safety and security as an investment option. Despite the recent Fitch downgrade of the U.S. government’s credit rating, Buffett remains confident in the stability of Treasury bills and their potential to provide solid returns. By taking a “barbell” approach to his investment portfolio and balancing out his holdings in cash and equities, Buffett is able to diversify his investments and hedge against potential economic fluctuations.

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If you’re nearing retirement without much savings, delaying that milestone could make sense. But will it make a huge difference? Read on to learn more. 

It’s important to go into retirement with a nice amount of money in your IRA or 401(k). This way, you won’t have to deal with financial worries later in life.

But many Americans today are nearing retirement without a lot of money in savings. According to Northwestern Mutual, the average 60-something has $112,500 socked away for retirement. And frankly, that’s not much.

If we follow the guidance to take 4% annual withdrawals from savings that financial experts have long recommended, a savings balance of $112,500 results in just $4,500 of annual income. And while that’s on top of Social Security, it’s not a ton of money given the average recipient of those benefits today collects roughly $22,000 a year.

If you’re nearing retirement and aren’t so confident in your savings, then you may be inclined to stay in the workforce a bit longer. But will that really make a big difference? While you won’t necessarily grow your savings all that much by delaying retirement for two years, it could be a smart move nonetheless.

Don’t expect your savings to take off

Delaying retirement for a couple of years might allow you to give your savings a modest boost — but probably not a life-changing one. Let’s say you have $112,500 in savings right now and instead of retiring, you work two more years, during which time you’re maxing out your IRA at $7,500 annually, which is the limit for people aged 50 and over this year.

Let’s also assume that your savings are invested somewhat conservatively since you’re on the cusp of retirement. The stock market’s average return over the past 50 years has been 10%, as measured by the S&P 500. But your portfolio might only give you a 6% return if it’s not as heavily loaded with stocks (and it generally shouldn’t be when retirement is near).

With all of that in mind, delaying retirement for two years and contributing an extra $7,500 a year to your savings during that time at a 6% return would grow your balance to about $142,000. That’s a nice bump. But if we apply a 4% withdrawal rate to that total, we only get about $5,700 of annual income — still not a lot.

Delaying retirement could still make sense

Postponing retirement by two years may not do a whole lot for your savings. But it could still benefit you.

For one thing, there’s value to leaving your savings untapped a couple of years longer, even if your balance doesn’t grow much during that time. Also, delaying retirement could also mean delaying Social Security and scoring a higher benefit in the process, since you’re rewarded financially for postponing your claim until the age of 70. And that’s really important, since the monthly benefit you qualify for at the time of your filing is the benefit you’re guaranteed to receive for life.

Delaying retirement by a couple of years might also allow you to pay down debts before wrapping up your career. That could leave you with fewer bills to contend with on a limited income. So if you’re not thrilled with your savings and you’re able to keep working a bit longer, it pays to push yourself to do so.

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Love your morning coffee? Read on for details on how to get some for free. 

Inflation has been hammering consumers for more than two years now. And while it’s thankfully been cooling, many people are still grappling with higher bills than they’re used to. That’s inevitably forced a lot of people to cut back on leisure spending so they can focus on essential bills, like rent or mortgage payments.

If you’re bemoaning the small luxuries you used to enjoy but can no longer comfortably swing, like store-bought coffee, there may be some good news in store. Beginning Sept. 1, Dunkin’ is bringing back its Free Coffee Monday promotion. And it’s an opportunity you may want to jump on.

The Dunkin’ details

Many people who work a traditional schedule dread Monday mornings because it represents the start of the workweek. Dunkin’ is sweetening the deal, however, with its Free Coffee Mondays. Members of the chain’s rewards program, which is free to join, can enjoy a free medium hot or iced coffee with the purchase of another item on the Dunkin’ menu.

Of course, it can be argued that Dunkin’s free coffees on Monday aren’t totally free because you’re required to purchase another item at full price. But if you’re someone who would normally pick up a muffin and coffee from Dunkin’, then you can at least get one free item out of the deal. And at a time when costs are generally still higher, every bit of savings counts.

When will inflation ease completely?

In July, annual inflation was measured at 3.2%, per that month’s Consumer Price Index (CPI). That’s a vast improvement from June 2022, when annual inflation was measured at 9.1%.

But still, even as of July, the cost of many common goods was up substantially. Food at home (otherwise known as groceries) was up 3.6% annually, while electricity costs were up 3%. And one of the biggest increases noted on last month’s CPI was shelter costs. Those rose 7.7% on an annual basis.

On a positive note, gas prices are way down from where they were a year ago, and some other expenses have decreased, too. But all told, life’s still pretty darn expensive these days. And it’s hard to say when inflation will reach pre-pandemic levels. It could end up taking many more months to get to that point. So it definitely doesn’t hurt to take advantage of free offers like Dunkin’s as they arise.

Also, if you’re someone who does frequent Dunkin’, pay attention to other savings opportunities. Dunkin’ frequently runs promotions that run the gamut from discounted food items to free beverages. And remember, if you’re on a “no-spend” kick but you have Dunkin’ reward points banked, you can always cash them in for free food and drinks if you could really use a pick-me-up.

Dunkin’ is far from the only chain to offer a rewards program, so think about the places you like to go for a quick lunch or morning beverage and see what programs they have available. You may be in a place where you have to cut back on smaller treats to conserve cash, but that doesn’t mean you can’t find ways to score freebies that boost your spirits.

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On a recent trip to an amusement park, my phone fell out of my pocket on a roller coaster. Read on to learn the move I made as a result. 

Recently, I went to an amusement park with my family and a few friends. Amusement parks can give your credit cards a workout even at the best of times. But on this particular trip, I nearly ended up with an extra $1,000 out of my bank account.

Here’s what happened, and the important financial lesson I learned because of it.

A rough ride leads to a dropped phone

The disaster that almost cost me a fortune occurred when I went on a roller coaster ride with my friend. I hadn’t seen her in a while and we were busy chatting as we waited for the ride so I neglected to take my phone out of my pocket before getting on. I thought nothing of it, until the ride came to a stop and the people behind me announced: “Hey, I think your phone fell out over the lake!”

Sure enough, my phone was not in my pocket anymore, and we had indeed sped very quickly over a lake which would have meant that my phone was gone for good. And, my phone, like most people’s phones these days, isn’t just a phone. It is a late-model smartphone with a $1,099.00 price tag.

Since I don’t like to finance my phones, I paid for it in full. And I did not have insurance on it because I reasoned that I wouldn’t lose it due to the FindMyPhone feature and I wouldn’t break it because I would keep it in a waterproof rugged case. So, the loss of this phone would leave me out around $1,000.

Fortunately, it turned out it fell just before the lake and a very nice maintenance person was able to retrieve it for me the next day. But, while disaster was averted, I learned an important lesson.

Valuable items need to be properly insured

The lesson I learned was that my phone absolutely needed to be insured because it was an expensive item that was vulnerable to being lost or damaged — even if I was careful and even if I took precautions to prevent it.

The cost of insuring the phone (which I have now done) is $13.49 per month. With the insurance, the cost to replace the phone if it was accidentally lost or damaged would be a $149 deductible so I would save about $851 if I needed a new phone and insurance covered it. With premiums coming in so low, if my phone needed to be replaced under the insurance around once every 63 months, I’d break even for the insurance costs. My $851 in savings due to being insured divided by $13.49 per month in premiums shows me that’s the case.

Since phones are carried everywhere and you never know when you’ll have one fall out of your pocket at an amusement park, or suffer some other calamity, going without insurance now just seems foolish to me. The monthly cost of a policy is a small price to pay for the peace of mind of knowing you won’t randomly have to shell out hundreds of dollars due to an unforeseen incident.

Of course, this principle holds true for all insurance for valuables, whether it’s an expensive engagement ring or your car or your phone. You’ll want to make sure you have coverage for things it would be a hardship to replace, especially if you can get the protection at a reasonable price.

To decide if you need coverage, compare the cost of the premiums versus what it would cost you to replace the item without coverage just as I did above. If you suspect something could happen within the time frame that it would take to break even for insurance costs, buy a policy now before it’s too late like it almost was for me.

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Maxing out your credit cards can be bad news for your credit score. Read on to learn more. 

The spending limits that credit card companies set aren’t arbitrary. They’re commonly based on factors such as your income.

There may come a time when you’re about to max out your credit cards, whether because you’re charging a single large purchase or because you got hit with a series of unplanned bills. Maxing out your credit cards is not a good thing, because it means you won’t have any wiggle room to charge additional expenses as they arise. But maxing out credit cards can also result in credit score damage.

The problem with maxing out credit cards

You might assume that maxing out your credit cards isn’t such a big deal. After all, if your credit card issuers collectively determine that you can carry up to a $10,000 balance, and you hit that limit, what’s the issue?

The problem, though, is that your credit utilization ratio is a big factor that goes into calculating your credit score, and it measures the amount of revolving credit you’re using at once. A ratio above 30% has the potential to cause credit score damage. And if you’re maxing out your credit cards, it means you’re at 100% utilization, which is even worse from a credit score perspective.

What sort of credit score damage will maxing out cause?

The extent to which maxed out credit cards will impact your credit score will depend on what that number looks like to begin with. FICO says that if you’re starting off with a credit score of 793, maxing out your credit cards might drag your score all the way down to 665. That’s a drop of 128 points.

However, if you’re starting off with a credit score of 669, maxing out your credit cards might lower your score down to 640. That’s just a 29-point drop.

Now, you may be thinking “what gives?” But the reason maxing out credit cards will cause more damage to a higher credit score is that it’s more out of character for a score of that level. As such, the damage is more significant.

How to avoid maxing out your credit cards

If you’re getting close to maxing out your credit cards, it’s important to do a deep dive into your spending and find ways to curb it until you’re able to chip away at your balances. You may even need to consider taking on a second job to drum up cash to whittle your balances down.

Of course, one option you can look at is asking your credit card issuers to raise your credit limits. If your income has increased since applying for those cards, you may get more spending power out of them.

But remember, the higher your credit limit, the more debt you might potentially rack up. So be very careful when asking for a credit limit increase, especially if you’ve run into problems with maxing out your credit cards before.

Also keep in mind that even if your credit cards aren’t maxed out, using 70% or 80% of your total credit limit at once could cause a lot of credit score damage, too. So it’s always a good idea to keep tabs on your credit card balances and take steps to reduce your spending once they start creeping upward in a notable way.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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