Better Buy Right Now With $500: XRP vs. an Index Fund

When people buy cryptocurrencies like XRP (CRYPTO: XRP), they're often doing it because they're dreaming about their pick going to the moon and making them rich. That rarely happens. On the other side, most people have fairly modest expectations when they buy index funds like the SPDR S&P 500 ETF Trust (NYSEMKT: SPY), which has averaged a return of about 10% annually thanks to its broad-based holdings.

But which of these assets is the better buy right now with a modest investment of $500?

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What $500 buys you

An exchange-traded fund (ETF) like SPDR will let you buy fractional shares and then subsequently own a small slice of the U.S.'s largest businesses. So having just $500 in starting capital is not an impediment, even though the ETF goess for about $670 a share (as of March 12).

In terms of its recent performance, the market returned about 17.7% in 2025, well above the historical norm. But despite being a safe investment, it can lose value too, as in the brutal bear market of 2022, when it lost 18.1%. The point is that over decades, its monthly and annual swings make for a fairly consistent upward slope.

Buying the index might seem like a pretty boring way to invest, and it's true that there's almost zero chance of it ever making you rich overnight. But it's exactly this lack of excitement that makes it such a powerful way to compound your wealth over time, and every investor should probably own a large allocation.

A $500 investment in XRP, on the other hand, gives you about 365 XRP as of today. Those coins don't confer any governance rights, nor do they pay any dividend. During the past three years, XRP's price is up by about 265%, smashing the return of an index fund. But in the last three months, it's down by 31%, so it's an extremely volatile asset that's fully capable of leaving holders with major losses for long stretches.

What's the right move here?

For most investors, the choice between XRP or an index fund is a question of how well your portfolio is diversified.

XRP is a risky investment because its price depends on the coin's issuer, Ripple, a closely held company, successfully marketing the coin as part of a suite of financial services that it offers to banks and other financial companies. Ripple has many different paths to succeed within that mandate, but there's no getting around the fact that buying XRP is essentially a bet that a business will be doing things to increase its value.

On the other hand, an index fund doesn't need a specific leader or group of software developers to execute a roadmap. Indexes track the output of hundreds or sometimes thousands of companies. If one of the stocks in the index underperforms a lot and shrinks, it eventually gets removed from the index.

Thus, if you don't already have a significant allocation of index funds in your portfolio, buy some with $500. If you're already fully diversified, including both index funds and safer crypto investments, it could still be worth buying some XRP.

Alex Carchidi has positions in SPDR S&P 500 ETF Trust. The Motley Fool has positions in and recommends XRP. The Motley Fool has a disclosure policy.