8 Smart Ways To Invest $5000 or Less

Eva-Katalin/iStock via Getty Images
Eva-Katalin/iStock via Getty Images / Eva-Katalin/iStock via Getty Images

It’s nice to have a little chunk of change in your bank account, but it’s even nicer to invest it and earn a big chunk of change.

According to a Pew Research survey from March 2021, about half of workers who experienced a pay cut during the COVID pandemic were still earning less than they were prior to the global health crisis. A survey of 1000 small business owners by the accounting software company FreshBooks found that 60 percent have seen a pandemic-related impact on their revenue. That trend has increased workers’ focus on savings, investing, and earning a passive income.

The good news: There are lots of ways that amateur investors and others can build wealth without becoming Wall Street execs. Anyone who is willing to put in the effort to learn about different types of investments and the risks associated with any given opportunity can master the basics. And with so much focus on financial democratization and funding access, there are more resources than ever before to help you get started.

While this shouldn’t be construed as investment advice, the below options are good places to start if you’re ready to make smart investing decisions. Some options will be riskier than others, so keep in mind your tolerance for risk, and make sure that you’ve established an emergency fund for yourself first.

Here are a few of the best ways to invest $5000 or less. The sooner you start, the more money you can make.

1. Online Banks and Investment Apps

If you have $5000 saved in your bank account, one smart move is to transfer it to a high-interest savings account at an online bank. Online banking institutions can typically offer higher interest rates than brick-and-mortar banks because there are fewer financial oversights when it comes to maintaining accounts.

Additionally, there are several apps built for investing small amounts of cash at a time by automating your monthly savings and investments. The apps can even provide insights so that you can spot bad spending habits and subscriptions you don’t use.

2. Certificates of Deposit

CDs were once a tried-and-true way to keep your funds safe while also earning 10 to 15 percent interest. While today’s CDs typically offer interest rates of less than 2 percent, some experts suggest that they are still a viable savings option and a safe way to invest.

“If you don’t need access to your money for several years, a longer-term CD would typically provide a substantially better return than keeping your money in a standard savings account,” Fred Jacobs, education specialist at Ent Credit Union in Colorado, tells Mental Floss.

3. Peer-to-Peer Lending

One of the riskier (and sometimes more rewarding) places to put your nest egg is with a peer-to-peer lending firm. P2P firms are commonly found online and provide access to funding outside of banking institutions.

These lending websites connect borrowers to investors. Peer-to-peer lending is a smart way to invest if you want to get a better return on your savings than a high interest bank account or CD can offer. With the ability to charge interest, peer lenders can create passive income and give someone else a leg up.

4. Contributions to a Roth IRA

Retirement is not something everyone thinks about at the start of their careers, but most of us will have to go there at some point. And when that day comes, you’ll be glad that you planned for retirement early.

There are many different retirement plan options, such as 401(k)s and Traditional IRAs, but Roth IRAs are uniquely advantageous for people who think that they will be in a higher tax bracket by the time they retire. Roth IRAs collect taxes when you deposit money, so that it can be withdrawn tax-free during retirement. Millennials have been taking advantage of the benefits of Roth IRAs more than any other generation. In fact, 15 percent of Millennials regularly contribute to their Roth IRA.

5. Investments in Real Estate

With $5000, it’s possible to invest in real estate in two main ways: through real estate investment trusts and real estate crowdfunding.

A real estate investment trust (REIT) refers to a corporation that owns a group of properties that produces a steady stream of income. Those who invest in an REIT are entitled to a share of the income that is generated by these properties.

Similarly, real estate crowdfunding refers to platforms that accept investments even from nonaccredited investors. That means that you could be making returns on commercial and residential properties without ever purchasing a property.

6. Trading Cryptocurrencies

Cryptocurrencies like Bitcoin are an appealing investment option for some because they are widely available with almost no barriers to entry. In 2020, the price for Bitcoin increased 228 percent from $7000 in January to $23,000 in December. Investing in volatile cryptocurrencies isn’t for everyone, but if you can stick to a trading strategy that works, then it can be a lucrative investment opportunity.

7. Exchange Traded Funds

If you want to start trading stocks but have only $5000 to play with, consider investing in an exchange traded fund or ETF. These funds typically require no minimum investment and are made up of a diversified portfolio managed by an automated system with little human interaction. This passive management means that ETFs have lower ongoing costs, but you must pay transaction fees as with other stocks.Remember, pay attention to your risk tolerance and research the fees and dividends before you make a purchase.

8. Index Funds

Like ETFs, index funds are made up of multiple, more conservative investments and are passively managed, offering a lower expense ratio. Index funds follow a specific market index (like the S&P 500) so you can reasonably assume you’ll make money in the long term by investing in these funds.