How I’d invest $500 today

If you’ve got some extra cash and you’re ready to invest it, it’s important to get the best return on your money that you can, whether it’s a small amount or a big one.

Here are three of my best ideas on how you could best utilise your $500, including paying off debt, an investment in hundreds of companies at once and a highly speculative investment that could pay off big time.

Target bad debt first

Own a credit card? Are you paying off your balance each month? If not, then your bank could be charging you interest on the balance at over 20% per annum. For a $1,000 balance, that means interest costs of $200 a year or higher.

Paying $500 off your credit card would save you $100 in interest – delivering you a guaranteed 20% gain on your investment. Trying to achieve that in the share market means taking on some huge risks and even then there’s no guarantee you could match that.

Paying down your credit card also has other benefits including the satisfaction you will feel once that debt is no longer hanging over your head. And here’s another tip. Cut up your credit card now and concentrate on paying off the remainder. With Visa and Mastercard debit cards widely available, there’s no real reason most people need to hang onto a credit card.

Invest in an Exchange Traded Fund (ETF)

Buying $500 worth of shares in an ETF gives you wide exposure to an index of companies such as the S&P/ASX 300 (Index: ^AXKO) (ASX: XKO) or the US S&P 500. If you want exposure to Australian companies, you could try the Vanguard Australian shares index – V300AEQ ETF UNITS (ASX: VAS), which gives you instant exposure to the top 300 companies. If you want international exposure, you could go for the Vanguard MSCI Index International Shares ETF (ASX: VGS) which currently holds 1,571 of the world’s top companies, and charges a very low management fee.

You’ll receive dividends on a quarterly basis, plus have the opportunity for capital growth.

A speculative lithium bet

If you are willing to take the risk of losing all or most of your capital, you could try buying $500 worth of shares in an ASX-listed lithium developer. Lithium demand is expected to soar and supply is unlikely to be able to meet it for many years. Taking advantage of soaring lithium prices means producers should be able to generate substantial earnings. The top ASX-listed lithium company is Orocobre Limited (ASX: ORE) and is currently ramping up production to full capacity after hitting breakeven operating costs in January this year. If you want to read more about the company, we’ve covered it in more detail here. $500 would buy you 114 shares in Orocobre at the current price of $4.35 (excluding brokerage costs).

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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