Today is certainly an uncertain time in the stock market. However, history has shown that when the bear is roaring loudest, that's the time to invest. Many times, though, you'll run across the following: "If you had invested $10,000 into company ABC back then, you would have X today." Of course, 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 always get depressed. Why? Because I don't have $10,000 to invest 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 despair at ever making it.
So, what to do?
Maybe you're 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, ones like you or me with only a few hundred dollars to invest at a time, locked out.
Today, though, discount brokers such as TDAmeritrade or Scottrade will charge you less than $10 per trade and 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 started in the market than ever before. 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 small investments in a few different companies would have done.
- Just $500 put into biotech company Biogen Idec
(NASDAQ:BIIB)15 years ago would be worth over $40,000 today -- a beautiful annual return of 34%, even with the worries related to Tysabri recently. Investing in another biotech firm, Gilead Sciences (NASDAQ:GILD), would have been nearly as good, also, at just shy of 33% per year. That would have gotten you well above $35,000 -- an amazing 70-bagger!
- Of course, regular tech did okay, too. Even several years after the dot-com bust, a similar investment in Dell
(NASDAQ:DELL)would have morphed into nearly $11,000, thanks to a 22.8% annual return on average.
- Payroll services company Paychex
(NASDAQ:PAYX)performed at an average 16.8% annually over the past 15 years, resulting in just over $5,100. That 10-bagger would have made Peter Lynch happy.
- Annual returns greater than 15% could have been had with small investments in Internet hardware maker Cisco
(NASDAQ:CSCO), database provider Oracle (NASDAQ:ORCL), or even (to get away from tech) discount brokerage Charles Schwab (NASDAQ:SCHW).
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 beginning of baseball season.
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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. and is glad baseball season finally started. He owns shares of SYSCO. That company is a Motley Fool Income Investor pick, as is Paychex. Dell and Paychex were chosen at Inside Value, and Biogen Idec and Schwab are Stock Advisor selections. The Motley Fool has a disclosure policy.