Today I want to answer a question about only having limited funds to invest. “I only have $500 to invest. How do I make the best of it?”
You buy an index fund. The positive thing about those is that they are reasonably cheap and you get exposed to all the stocks in that index all the time. That way you don’t have to worry about “beating the market” or “picking the right sectors”. The fund performs as the index – that is the whole idea.
The only real downside that I can see with an index fund is that they are boring. You will never be able to tell your friends how well your stocks are performing, because they perform just as well as the index itself.
If we assume that the stock market will return 7 percent a year, which is not unreasonable, over 20 years you will have doubled your money twice ($500 => $2000).
However, over the years the cost advantage will bear fruit and you will be able to see your investment grow substantially. Hold it over 25 years, add new money each month and you will be wealthy in the end.
Today I’ve been talking about investing only limited funds. My conclusion is that it is best to buy an index fund. They are cheap and you get exposed to the over all stock market like this.