Summary: Although 500 CAD might seem insufficient to become an investor, you can get this sum to earn money with the right approach. In this guide, we will explore the five best strategies for investing $500 in Canada, provide guidelines to prepare you for the investing journey, and the optimal brokerage platform, such as Interactive Brokers.
Best Platform for Worldwide Stock Trading & Investing
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Highly trusted multi-asset broker with clients in over 200 countries
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Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
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Low commissions starting at $0 with no platform fees or account minimums
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Easily fund your account and trade assets in 26 currencies
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IBKR pays up to 4.58% interest on cash balances of $10k or more
Before you start investing
As investing has no guaranteed outcome, establishing a firm financial base is paramount to a successful investment. Doing these two things before you purchase any financial asset makes you safe from bad-case scenarios:
- Create an emergency fund: Serious investors should have a margin for events in life that can cause unpredicted expenses. With three to six months of living costs covered by an emergency fund, you should prevent resorting to high-interest debt;
- Pay off high-interest debt: High-interest debt can quickly eat into your earnings and negate the returns you could gain by investing. Make sure you pay off all credit card, payday, and other loans before investing. Low-interest debts like mortgages do not significantly threaten your investment endeavors.
Only after you make sure you cleared all high-interest debt and created an emergency fund should you start investing. A solid foundation will boost your odds and decrease the overall level of risk that investing holds.
Remember
Best ways to invest $500 in Canada
Despite seeming modest, 500 CAD invested in Canada can bring returns with proper decisions and strategies. There is no best way to do this, as your style and investor personality define the optimal strategy.
Let us go through the most optimal paths to invest $500 in Canada:
How to invest $500 in Canada #1: Stock market
Investment type: Long-term growth
Risk Level: Varies
Recommended broker: Interactive Brokers
Best Platform for Worldwide Stock Trading & Investing
-
Highly trusted multi-asset broker with clients in over 200 countries
-
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
-
Low commissions starting at $0 with no platform fees or account minimums
-
Easily fund your account and trade assets in 26 currencies
-
IBKR pays up to 4.58% interest on cash balances of $10k or more
You can kickstart your investing career by gaining exposure to the stock market, as it is one of the best ways to start accumulating money. The statistics and historical performance show that stocks and shares have earned investors more than most assets and commodities, beating bonds, commodities, and even real estate.
Stocks are a long-term investment due to their high price volatility. In other words, during some years their price will soar, while during others it tends to drop harshly. The textbook example is the S&P 500 index, the price of which increased by +26.89% in 2021, only to fall by -19.44% in 2022. Despite this, the average annual returns amounted to 10.21% since the index was initiated in 1957.
As you can see, stocks are volatile financial instruments with relatively high levels of risk. Successful stock investors must be comfortable with the unstable nature of their investment and maintain composure during pressure. If this is not your cup of tea, consider other options we will discuss below.
Pros and cons of investing in the stock market in Canada
Pros
- High returns: Stocks offer higher potential average returns than most other investment assets;
- Liquidity: Investors can buy and sell shares quickly and simply;
- Low barrier of entry: Most investing services offer commission-free trading and accounts without minimum sums, which allows you to focus your $500 on buying stocks. In fact, you can buy stocks for as little as several dollars;
- Build long-term wealth: With a bit of patience and luck, an adequately managed stock portfolio can deliver significant results in the long run.
Cons
- Returns are not guaranteed: Stocks perform well above most commodities but are still not guaranteed to bring positive results.
- No short-term gains: Stocks require patience and at least a few years to produce significant results. They are not the instrument to try and game the market with;
- Volatility: Stock prices can swing wildly, so mental strength is necessary to stay on the projected financial course, which not all investors have;
- Time and effort investment: Stocks are an active investing instrument, meaning they take time and effort to monitor and manage, e.g., regular fundamental and technical analysis.
How to invest $500 in Canada #2: Dividend stocks
Investment type: Long-term growth and passive income
Risk Level: Varies
Recommended broker: Interactive Brokers
Best Platform for Worldwide Stock Trading & Investing
-
Highly trusted multi-asset broker with clients in over 200 countries
-
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
-
Low commissions starting at $0 with no platform fees or account minimums
-
Easily fund your account and trade assets in 26 currencies
-
IBKR pays up to 4.58% interest on cash balances of $10k or more
Similar to regular stocks but with a critical difference, dividend stocks pay out a portion of their profits as dividends to their shareholders in cash. They form a profitable source of passive income that you can spend or reinvest however you want.
Investing your $500 in some of the best dividend-paying companies can be a wise investment choice, as they tend to increase their dividend payments continuously. This increase is a sign of financial stability and a healthy growth rate. You will also recognize such companies by their historical performance, free cash flow, and positive media coverage of their actions and plans.
You can recognize the best dividend-paying companies by a steady increase in dividend payments over time. This reflects financial vitality and a stable pace of growth. Other factors to consider are historical performance, free cash flow, and the company’s plans for the future.
Important
How to invest $500 in Canada #3: Index funds and ETFs
Investment type: Long-term growth
Risk Level: Low (varies between funds)
Recommended broker: Interactive Brokers
Best Platform for Worldwide Stock Trading & Investing
-
Highly trusted multi-asset broker with clients in over 200 countries
-
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
-
Low commissions starting at $0 with no platform fees or account minimums
-
Easily fund your account and trade assets in 26 currencies
-
IBKR pays up to 4.58% interest on cash balances of $10k or more
Index funds and exchange-traded funds (ETFs) are investment assets that mirror the performance of a market index, like the S&P 500. Instead of trying to beat the market, these funds’ performance corresponds with their target’s financial outcome.
Investing in Index funds represents a cheap and straightforward way to gain exposure to various markets and diversify your portfolio. Additionally, they are a substantial risk management tool as your investment will get spread across tens or even hundreds of different securities.
This type of investment is suitable for passive investment strategies and long-term thinking. You will likely want to go with the buy-and-hold approach, which takes longer than some other assets on this list but requires almost zero active management to deliver results.
In Canada, the most popular and tracked indexes are:
- BMO S&P/TSX Capped Composite – the largest Canadian companies trading on the Toronto Stock Exchange (TSX);
- iShares S&P/TSX 60 – the 60 largest stocks by market cap traded on the TSX;
- FTSE Canada All Cap – small, medium, and large Canadian stocks by market cap;
You might also consider investing in the three most broadly tracked indexes in the US, which are:
- The S&P 500;
- Dow Jones Industrial Average;
- Nasdaq Composite.
Pros and cons of investing in index funds and ETFs in Canada
Pros
- Diversification: Index funds and ETFs alleviate high risk by spreading your investment across various industries and sectors;
- Low fees: Being part of passive investment strategies, index funds and ETFs cost significantly less in fees and costs to maintain and trade due to fewer transactions;
- Easy access: Using a third-party investment brokerage like Interactive Brokers makes the market easy to access for less initial investment;
- Liquidity: You can buy and sell Index funds and ETFs quickly and easily;
- Transparency: Index funds and ETFs are publicly-traded assets, which allows investors to examine the performance of each stock in a fund;
- Convenience: Investing in an index fund is many times easier and cheaper than investing in each of the listed stocks individually;
- Simplicity: Monitoring the overall performance of the index fund or ETF spares the investors from emotional stress due to the volatile prices of each individual stock.
Cons
- Limited control: You have no say on which companies you invest in when you place your money into an index fund or ETF;
- Volatility: Index funds are tied to their benchmark targets: if the market experiences a dip in price, the fund will follow in its steps;
- Slow gains: With passive, ‘hodling’ investment tactics, you will be exposed to less risk, but your potential gains will also be realized more slowly than with other investment instruments.
How to invest $500 in Canada #4: Commodities
Investment type: Long-term growth, diversification
Risk Level: Varies
Recommended broker: Interactive Brokers
Best Platform for Worldwide Stock Trading & Investing
-
Highly trusted multi-asset broker with clients in over 200 countries
-
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
-
Low commissions starting at $0 with no platform fees or account minimums
-
Easily fund your account and trade assets in 26 currencies
-
IBKR pays up to 4.58% interest on cash balances of $10k or more
Investment commodities include a set of various assets, from agricultural products like rice and cocoa and natural resources such as oil and gas to precious metals like silver and gold. They provide a suitable way to diversify your portfolio and represent a hedge against inflation, but they also show high levels of volatility and remain susceptible to external factors.
The value investors can derive from commodities depends on supply and demand, as well as other factors that affect the given commodity that may not necessarily be financial. For example, staple crops like wheat depend on the weather, but also geopolitical factors, as shown by the Russian invasion of Ukraine.
As with any other financial instrument, it is vital to research the commodity you want to invest in.
Pros and cons of investing in commodities in Canada
Pros
- Diversification: As their prices depend on different factors than traditional financial instruments, commodities are a great diversifying opportunity.
- Inflation hedge: Some commodities, like gold and silver, have historically acted as a hedge against inflation. Most of them retain their value, or even grow, when the rest of the economy experiences a downturn, allowing the investors to preserve their purchasing capabilities;
- Exposure to various industries: Various commodities belong to different sectors and industries, which gives investors many easy access points to new markets. As their span range is enormous, investors can have a stake and benefit from several sectors simultaneously.
Cons
- High volatility and external factors: The price of commodities is extremely dependent on factors like climate change, geopolitics, supply and demand, and cultural developments and trends. These factors are highly unpredictable, which can lead to unexpected changes in price (in either direction);
- Lack of guaranteed cash flow: Commodities offer no stable or regular income in dividends or payments. Their primary value driver is price changes in the market, resulting in capital gains or losses;
- Additional costs: Investing in commodities involves a material dimension, unlike bonds or cryptocurrency, which introduces additional costs related to storage, security, and insurance.
How to invest $500 in Canada #5: Cryptocurrencies
Investment type: Alternative investment, diversification
Risk Level: Very high
Recommended broker: Interactive Brokers
Best Platform for Worldwide Stock Trading & Investing
-
Highly trusted multi-asset broker with clients in over 200 countries
-
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
-
Low commissions starting at $0 with no platform fees or account minimums
-
Easily fund your account and trade assets in 26 currencies
-
IBKR pays up to 4.58% interest on cash balances of $10k or more
Investors willing to take on greater levels of risk should consider investing in cryptocurrencies. Several strategies are valid when it comes to crypto investing, such as purchasing individual tokens, like Bitcoin (BTC) or Ethereum (ETH), and directly investing in cryptocurrency companies or blockchains, such as Coinbase (Nasdaq: COIN) or Roblox (NYSE: RBLX).
Before you invest in crypto, however, it is crucial to understand that cryptocurrencies are a risk-intensive asset. Due to being a relative newcomer on the financial stage and ongoing efforts to regulate it, their price tends to change suddenly and rapidly. Crypto has been known for its rags-to-riches stories, but the other side of the coin is that many traders have been left empty-handed.
Crypto staking
Pros and cons of investing in cryptocurrencies in Canada
Pros
- High-risk, high-reward: Despite (or due to) their volatility, cryptocurrencies have a lucrative potential for extreme surges in price in a short time;
- Liquidity: You can buy and sell crypto for cash around the clock;
- Decentralization: The vital aspect of most cryptocurrencies is their decentralized network, or blockchain, that provides transparency and security advantages over classical financial methods;
- Diversification: Cryptocurrencies can prove as an excellent portfolio diversification opportunity.
Cons
- Extreme volatility: Stark turns in price are a regular occurrence with cryptocurrencies, and drops can lead to significant potential losses;
- Regulatory risk: While crypto is decentralized, there are ongoing efforts to introduce more regulations by financial institutions, which could change the course of their value and legality;
- Security risks: Advanced security measures need to be taken to prevent hackers and other types of breaches, such as crypto wallets and digital security protocols;
- Fraud: Due to the lack of regulation, the crypto market is rife with fraud, including Ponzi schemes, fake initial coin offerings (ICOs), phishing, rug pulls, and pump-and-dump schemes. Study our guide on how to avoid crypto fraud for more information.
How to safely invest $500 in Canada — things to consider
Ensuring that your earnings are secure is almost as important as earning them in the first place. To invest safely, consider doing the following:
- Diversify: Managing investment risks is much easier in a comprehensive portfolio with many different types of assets. Diverse portfolios mitigate risk and ensure that your losses are lower in bad outcomes;
- Spread out your purchases: Buying assets at once in lump sums can introduce market instabilities and make the prices unfavorable to your investment goals. Consider using the dollar-cost averaging (DCA) method.
- Stay wary of fraud: Con-men prowl in every market, so staying vigilant against fraud is essential to your portfolio’s safety. Be attentive to novelty scam tactics, false websites, and forged documents. Check with the Financial Consumer Agency of Canada (FCAC) if you notice a red flag.
Conclusion
Do not underestimate the seemingly humble sum: investing $500 in Canada can go a long way if you play your cards right.
Remember to stay safe, adhere to the guidelines, and keep a diverse portfolio. Also, never invest what you cannot afford. In other words, starting investing with high-interest debt can mean trouble on the horizon.
If you find the article reassuring and decide to invest more, consider reading our guides on investing $20k, $100k, or $300k.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about how to invest $500 in Canada
How to invest $500 in Canada?
Your best bet for investing $500 is spreading it across various financial assets, such as stocks, index funds, commodities, and cryptocurrency.
What is the best way to invest $500 safely?
The answer depends on your age, risk tolerance, personality, and financial appetite. Regardless of the way you decide to do it, remember to diversify your portfolio and repay all high-interest debt beforehand.
How to invest $500 for passive income in Canada?
You can obtain passive income sources by investing $500 in Canada via index funds, dividend stocks, and staking on cryptocurrency.
Where to invest $500 in Canada?
The best choice for investing $500 in Canada boils down to the stock market, dividend stocks, index funds and ETFs, commodities, and cryptocurrencies.
Best Platform for Worldwide Stock Trading & Investing
-
Highly trusted multi-asset broker with clients in over 200 countries
-
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
-
Low commissions starting at $0 with no platform fees or account minimums
-
Easily fund your account and trade assets in 26 currencies
-
IBKR pays up to 4.58% interest on cash balances of $10k or more
