Have you ever run across the following? "If you had invested $10,000 into company XYZ back then, you would have X today." Of course, X is always a large number like $500,000 or $1 million.
Whenever I see one of those "If you had invested" claims, I always get depressed. I don't know about you, but I don't have $10,000 to invest all at once!
Like a lot of you, I make a modest salary, pay my bills, and save for the future. I think I'm getting ahead when I manage to save a few hundred dollars each month. Then I read a statement like the one above and I despair that I'll ever make it.
So what to do?
Maybe you are in the same position, able to save what seems like just a little bit each month. Is it worth investing that little 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 brokers charged a lot at the time. Paying such large commissions back then tended to keep small investors 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 for small investors to get started in 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 our Broker Center.
It doesn't take much
Instead of the $10,000 mentioned above, let's see what a small investment in a few different companies would have done.
- Just $500 in computer and iPod maker Apple
(NASDAQ:AAPL)10 years ago would be worth well over $9,000 today, an outstanding annualized return of 35%.
- A similar-sized investment in Rio Tinto
(NYSE:RTP), the metals miner, would be worth nearly $6,000 today, returning an excellent 29% per year.
- You could have gotten average annual returns greater than 16% with small investments in the venerable U.S. Steel
(NYSE:X), oil supplier ConocoPhillips (NYSE:COP), or fertilizer producer Potash Corp. of Saskatchewan (NYSE:POT).
- You wouldn't even have needed to be invested in companies like those commodity big boys, either. Boring companies like medical tester Quest Diagnostics
(NYSE:DGX)or utility PPL (NYSE:PPL)would have turned small amounts into thousands of dollars, too. And that includes the recent market turmoil. Amazing, isn't it?
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?"
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This article was originally published Feb. 27, 2007. It has been updated.
Jim Mueller now lives outside Washington, D.C., and just saw an Orioles game at Camden Yards. He owns shares of SYSCO and Apple. SYSCO is a Motley Fool Income Investor pick. Apple is a Stock Advisor choice. Quest Diagnostics is an Inside Value selection. The Motley Fool has a disclosure policy.