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By Veronica Baxter
Special to the Financial Independence Hub
Do you have an extra $500 or $1,000 and want to learn something about investing? This article will explore some interesting online investment vehicles that can teach you something about investing, make you some money, and perhaps even further your social ideals.
But before you invest …
Pay off your Credit Cards
Is that $500 or $1,000 really “extra” money you can afford to play around with? If you have any credit card balances, it’s not. Use that money to pay your credit cards off before you start investing. Why? Because no investment in that amount will bring a return greater than what you’ll save by not paying credit card interest on that revolving balance.
For example, let’s say you have $1,000 in credit card debt at 18% interest. If you pay the minimum of $60 on that debt each month, it will take you 20 months to pay off, and you will have paid $158 in interest.
No investment exists that can make you anything near the $158 you spent borrowing that $1,000 from your credit card lender for 20 months. Pay that credit card balance off with your “extra” money and save up another $500 or $1,000 to play with.
Contribute to your Employer’s 401(k)
If you are not yet contributing to your employer’s 401(k)[in the U.S., Canadian equivalent is a group RRSP or Defined Contribution pension plan], start doing so, especially if your employer offers a matching contribution. Why? First, because if you are not contributing at least the amount your employer matches, you are leaving free money on the table. Second, when you contribute to your employer’s 401(k), you do so with pre-tax dollars, and thereby reduce your taxable income. This lowers your income tax bracket and you pay less income tax overall.
Contributing to your employer’s 402(k) is a win-win for you, so do that before investing “extra” money.
Exploring virtual Investment vehicles
Investment Apps
There are myriad reputable investment apps for your smartphone that vary in the amount of control you have over your investments and trades, and the amount of advice and data available, and the type of accounts you can have. Here are a few, just as examples:
Most control and lowest Fees: Robinhood
Robinhood can be described as a sort of bare-bones app, and while there is no account minimum and there are no commissions on trades, there are also no additional accounts available such as retirement accounts, and there is no data on investments.
This type of app is for the person who wants to save on fees and is not afraid to research investments on their own.
Most Investment data: E*Trade
If you want to do your research and trade in the same app, this is one to consider. You can learn about a company’s earnings, dividends, company news, and metrics like debt-to-equity ratio. You do pay for this feature – US$6.95 a trade. But beginners and experienced investors alike can appreciate the wide range of investment options available and the ability to invest in a way that is aligned with their risk tolerance.
Most Banking features: Stash
For only US$3 per month, this app offers management of your banking, investment, and retirement accounts in one place. Fractional shares of ETFs and stocks are available, but a limited selection. If you can pay $9 per month, the app offers an upgrade allowing access to investment research, two more accounts, and expanded reward features.
Stock Market Robo Advisors
Do you want professional help with investing but don’t want to pay for a financial advisor? Try a Robo Advisor. These offer varying degrees of assistance, control, automation, investment data, availability of investment types, and fees.
Many major brokerage firms offer Robo advisors, so do your research and find the one with features that suit you, the type of investing you want to do, and the level of involvement and control you want.
REITs
Are you interested in investing in real estate but do not have the hundreds of thousands of dollars and knowledge to do it yourself, nor do you want to assume all of the risks of investing in a single property on your own? A Real Estate Investment Trust (REIT) might be for you.
For as little as $500, you can get started investing in a portfolio of commercial property and/or mortgages. REITs make money managing, buying, and selling commercial real estate as well as commercial mortgages and have historically had a reliable rate of return.
Microloans
Microlending is about getting money to the people who need it to start a business, who might not be able to get a loan otherwise. LendingTree is probably the most well-known for offering microloans and investment in microloans. For a minimum investment of $1,000, individual investors can diversify their portfolios by investing in loans offering different risk of loss.
Microlending is popular among non-profit and not-for-profit organizations to further social causes. For example, there are organizations offering small loans to entrepreneurs starting a business in underprivileged areas, business owners of color, and female business owners.
Crowdfunding
Crowdfunding is about individuals backing an idea for a product, service, or cause. Kickstarter, IndieGoGo, and GoFundMe are popular platforms for crowdfunding. Surf around to find a product that interests you and your $500 or $1,000 can help make it happen.
Investing online – a Caveat
Buyer beware. Listing these investment vehicles in this article is in no way endorsing them or vouching for any particular rate of return. Before depositing money in any investment vehicle online, perform your due diligence. Google the firm or organization – what sort of reputation does it have? Has it been in the news? Any complaints? Any fines or fees from government agencies? Any investigations?
That being said, have fun with it and chalk any losses up to what you pay for an education in investing. Good luck!
Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy Philadelphia bankruptcy attorney.
