When most people get their tax returns back – which can sometimes reach a few thousand dollars – it’s almost like scoring another payday. But the problem with these returns is that people tend to look at them as “free cash” or “play money,” when the reality is that you earned that money. It was simply withheld from you and is finally coming your way.

If you want to be smart about how you use your money, you shouldn’t just go out and blow the money on discretionary purchases. In fact, this is the perfect opportunity to dip your feet into the investment world. While you may not be able to get involved in high-dollar investments, you can certainly try some avenues that only require a few hundred or thousand dollars to get started.

Here are a few:

1. Penny Stocks

While there’s no reason you can’t get involved in standard stock trading with a few thousand dollars, it’s not always the smartest move to go from no investing activity to high-dollar stock investments. Instead, you may want to get started with lucrative penny stock investing.

As the name suggests, penny stocks are stocks that are typically priced at less than one dollar. While these stocks are much less regulated than the ones you see on the Dow Jones, Nasdaq, or S&P500, they can also grow at a much swifter pace. Check out this guide to see if this could be a good low-entry investment for you.

2. Mutual Funds

Are you interested in standard stock market investing – but afraid of the risks? You can actually eliminate much of your risk by choosing mutual funds. While most require a minimum investment of a few thousand dollars, some will even let you get started with just a few hundred dollars.

In a mutual fund, your money gets pooled together with thousands of other investors and a mutual fund manager then diversifies the funds across many different high-performing stocks to yield strong returns (without heavy risk). When the stock market is performing well, you can earn very solid returns.

3. Peer-to-Peer Lending

If you’re willing to take on a bit more risk – and like the idea of helping others – you may consider peer-to-peer lending. This direct method of debt financing lets individuals – like yourself – lend money to people who need financial assistance to pay for home improvements, launch a business, or purchase a car.

Using a website like Lending Club, you can choose who you want to lend to, set the terms, and collect interest. While there is a certain amount of risk associated with lending, the average rate of return is generally between five and eight percent. Not bad!

4. Make a Down Payment on Real Estate

Everyone knows just how profitable real estate investments can be, yet few of us ever have the funds to get started. Well, now is as good a time as any to start building your real estate empire.

With just a few thousand dollars, you can place a down payment on a small rental property that you can then use to cash flow a few hundred dollars per month. By doing your due diligence and making a smart decision, you can also expect most properties to naturally appreciate over time. It’s a great way to diversify your portfolio.

Make Smart Choices

People often complain about not having enough money to set aside for investments. Well, maybe it’s time that you start looking at your annual tax return as an investment fund that can be used to fund things like penny stocks, peer-to-peer lending, down payments, and other things. You won’t be sorry!

Featured photo credit: Julien GONG Min via flic.kr

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