Got $500 to Invest in Stocks? Put it in These Index Funds

Whether you’re low or high risk, there’s an index fund for you that can put your $500 straight to work.

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If you’re new to investing, then one of the best places to start is by investing in an index fund. Even just $500 can make a huge difference while you figure out where you want to invest more of your savings.

That being said, there are so many index funds to choose from. This is why today we’re going to look at some considerations for different types of investors. Then, we’ll find some index funds that will ensure lower risk for that $500 while making it earn as much as possible.

Low risk

If you’re on the lower-risk side of the spectrum, then you’re going to want to identify index funds that typically focus on the tracking of broader market indexes with a history of stability. This would include funds from around the world, such as the S&P 500 or the TSX 60.

For lower-risk investors, it could be a good idea to invest in Vanguard S&P 500 Index ETF (TSX:VFV). This exchange-traded fund (ETF) tracks the performance of the overall S&P 500. The company also uses a different approach than other ETFs. Instead of focusing on owning the direct companies tracked in the S&P 500, it holds a “funds of funds” approach.

This is where the company invests in other United States-listed S&P 500 ETFs, gaining even more overall exposure. This can lead to even less risk for investors. As well, the ETF is well known for its low management expense ratios, putting that $500 to good use while not taking away much of that cash through fees at all. And with shares up 12% year to date and a yield of 1.08%, it’s a great buy for low-risk investors.

Medium risk

If you’re on the medium-risk side, you likely have time on your side. Younger investors may want to take this approach, as the market tends upwards over time. So, while you don’t want your investments to be up and down like a yo-yo, you do have time to see some recovery.

In this case, you’ll want an index fund that offers a balance between potential returns and volatility. For this, you may want to consider a mid-cap index fund. These funds track the performance of mid-sized companies, falling between large- and small-cap stocks in terms of market capitalization. You can, therefore, achieve a blend of growth potential and stability, making them perfect for medium-risk investors.

A great option in this case is BMO S&P US Mid Cap Index ETF (TSX:ZMID). This ETF seeks to track the S&P MidCap 400 Index. It, therefore, provides overall exposure to the United States mid-cap companies. While not focused on Canadian companies, it can provide you with a pure mid-cap play. Shares are already up 9.6% year to date, with a 1.5% yield. It also provides you with more diversification as a purely U.S. play outside of Canadian stocks.

Higher risk

If you want growth and you want it now, then you might be willing to put $500 towards a higher-risk investment. This would mean finding growth opportunities that come with increased volatility. But with a smaller amount invested, it means you have smaller to lose and could gain quite a lot!

In this case, emerging markets index funds are a strong choice. These are countries with rapidly growing economies and developing financial markets. Investing here would provide exposure to companies and industries with significant growth potential. But, of course, they come with volatility, such as political instability or currency fluctuations.

Even so, there are some strong options such as iShares MSCI Emerging Markets IMI ETF (TSX:XEC). This seeks to track the performance of the MSCI Emerging Markets Investable Market Index. It includes large, mid, and small-cap companies from emerging markets worldwide. It’s been doing well also, with shares up 6.6% year to date, and a 2.06% dividend yield. While there’s been more fluctuation, major gains could be seen for today’s investors looking for faster cash.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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