Have you ever run across the following? "If you had invested $10,000 in company XYZ back then, you would have X today!" And X is always a large number, like $500,000 or $1 million.
I don't know about you, but whenever I see one of those "If you had invested" claims, I get depressed. Why? Let me lay it out in clear, unambiguous language.
I don't have $10,000 to invest at one time!
Really. Like a lot of you, I make a modest salary, pay my bills, and save for the future. I manage to save a few hundred dollars each month, and I think I'm getting ahead. Then I read a statement like the one above and think that I'll never make it.
So what to do?
Maybe you're in the same position: able to save a little bit each month. Is it worth investing that bit? You tell me. A friend of mine turned a measly $220 investment in SYSCO into $57,000. Granted, it took him 27 years, but what an X! On average, he earned about 23% per year by investing in the food distribution giant.
Back when my friend made that investment, he paid a very large commission, both because he bought a few shares rather than a 100-share "round lot," and because at the time, brokers charged a lot. Paying such large fees back then tended to keep small investors, the ones like you or me with only a few hundred dollars to invest at a time, locked out.
Today, though, discount brokers such as TD Ameritrade or Scottrade will charge you less than $10 per trade, and they no longer charge extra for buying less than a round lot.
Many brokers also provide other features that make this a better time than ever before for small investors to get into the market. Maintenance fees for low-balance accounts are often a thing of the past, and many have direct deposit plans, which let you put a portion of your paycheck directly into your account every payday. Saving is effortless when you never "see" the money. To see what different brokers have to offer, check out the Fool's Broker Center.
It doesn't take much
Instead of the $10,000 most of us can't start with, let's see what small investments in a few different companies would have done.
- Just $500 in Canadian media giant Rogers Communication (NYSE: RCI) 10 years ago would be worth more than $7,600 today -- a very respectable annual return of 31.3%.
- A similar-sized investment in XTO Energy (NYSE: XTO), the Texan energy company, would be worth some $12,700 today, returning an outstanding 38.2% per year.
- Annual returns greater than 25% could have been had with small investments in precious-metals miner Goldcorp (NYSE: GG), casino operator Penn National Gaming (Nasdaq: PENN), or on-line retailer Amazon.com (Nasdaq: AMZN), even despite its dramatic decline between 2000 and 2002.
That's the way to riches -- starting with just a few hundred dollars and combining it with time. Anyone can do that. If you're in school, now is the time to start. If you've been working for a few years, even many years, now is the time to start. If you've just retired, given the longer life expectancies today, it certainly can't hurt to start. In other words, get started.
"Thank you, sir! May I have another?"
The trick, of course, is knowing which stocks to pick. Analyzing stocks takes time. You have to read the annual and quarterly reports, look at margins and returns on equity or assets, and evaluate management. It's a big commitment, and it can be difficult to fit in between work, family, and watching the Mets play.
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This article was originally published on Feb. 27, 2007. It has been updated.
Fool contributor Jim Mueller lives in D.C., but is going to his first Mets game next month. He owns shares of SYSCO. SYSCO is a Motley Fool Income Investor pick, while Amazon is a Stock Advisor recommendation. The Motley Fool has a disclosure policy.
