If I have a some money to save every month what is the best place to invest it?

I am going to be able to save about $500.00 a month. Should I put it in a savings account at around 5% or is there a better way to compound it over the years?

Public Comments

1. $500 a month will roughly produce $6000 per year plus interest. A rule of thumb which I personally agree with that you can only meaningfully invest in stocks when you have money in excess of 10 grand. Otherwise it's just not worth the hassle because they charge you a commission on a trade, which in case of small trades is a waste. I would do the following: open a savings account, then in a year move money to a CD account with a maturity of 12 months, while keeping adding money to the savings as they come. The CD will pay larger interest than the savings. In two years from today, you will have $12k plus interest. Then you could try opening a brokerage account (which still allows a cash position anyway) and invest in blue chips -- or whatever your objective is. There are also mutual funds, which, however, often charge a fee.
2. Because your best answer is already above, I wanted to point you to a downloadable MS Excel calculator at the below URL. It is a 40-year investment calculator. Input your age, investment level, ROI, and inflation rate and it tells you what your investment will look like in the future. Good luck!
3. You've already got a great answer, but keep in mind that you should work to have 3-6 months of living expenses liquid in case of emergencies. Once you have that, you can start diversifying into stocks through low cost mutual funds and CDs. If you buy a mutual fund, you may want to by a lifecycle fund that is targeted to your age group. They get more conservative as you get closer to retirement age. Check out some no-load funds from Fidelity, Vanguard, TRowe Price and others.
4. It depends on your age; if you are 60, you can afford to take far less "long-term" risk than if you are 20. A savings account at 5% would only be suitable for someone in their 80's, I'm afraid! Risk is typically inverse to return. If you are under 60, you should put it in a mutual fund with an historic return most likely to achieve your long-term wishes.
5. I would suggest that you put it in a solid mutual fund. Mutual funds are less risky than single stocks and you get better returns on your money than a savings or cd. I explain to everyone who asks your question the rule of 72. This basically states that if you divide your interest rate into the number 72, the number you come up with is how long it will take your money to double without you adding anything to it. Lets say you saved $500 a month for a year and stopped, and you're getting 12%. Yr 1=6000, Yr6=12000, Yr 12=24000, Yr 18=48000, and so on. That's without you adding anything! So if you're adding 6000 a year, then the numbers are dramatically larger. Go on the internet and look up a financial calculator and you can input your investment for the time period and interest rate and it will tell you what to expect. Mutual funds are also easily liduidable if you need them unless it's in a retirement plan. But i do suggest you put at least $100 of that money into an emergency fund so you don't have to use credit cards or touch your money that's compounding interest.