Today is certainly an uncertain time in the stock market. However, history has shown that when the bear is roaring loudest, or even just after it has quieted down a bit, is 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 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 at ever making 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, 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 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.
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 everything "i" and Mac maker Apple
(NASDAQ:AAPL)10 years ago would be worth just more than $6,000 today, an outstanding annualized return of more than 28%.
- Even better, a similar-sized investment in Texas oil and natural gas producer XTO Energy
(NYSE:XTO)would be worth $13,000 today, returning an excellent 38.5% per year.
- You could have gotten average annual returns greater than 22% with small investments in gold miner Goldcorp
(NYSE:GG), casino operator Penn National Gaming (NASDAQ:PENN), or energy company Suncor Energy (NYSE:SU).
- You wouldn't even have needed to be invested in companies like those big boys, either. Boring companies like seed producer Monsanto
(NYSE:MON)and hot-rolled steel product maker Nucor (NYSE:NUE)would have turned small amounts into thousands of dollars, too.
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 Nationals play.
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This article was originally published on Feb. 27, 2007. It has been updated.
Jim Mueller lives outside Washington, D.C., and is hoping to attend at least a couple of baseball games this season. He owns shares of SYSCO and Apple. SYSCO is both a Motley Fool Income Investor and an Inside Value selection. Apple is a Stock Advisor choice. The Motley Fool has a disclosure policy.