Today is certainly an uncertain time in the stock market. The market is up, but has it truly recovered? History has shown that when uncertainty reigns, 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 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 in tech company Research In Motion
(NASDAQ:RIMM)10 years ago would be worth $7,450 today -- a beautiful annual return of 31%, even with increased competition over the years. Of course, an investment in biotech Celgene (NASDAQ:CELG)would have done slightly better at 38.5% annually. That would have gotten you to just shy of $13,000 -- an amazing 26-bagger!
- A similar-sized investment in Teva Pharmaceuticals
(NASDAQ:TEVA), a generic drugmaker, would have morphed into $4,400, thanks to 23.8% annual return on average.
- Oil and gas services company National Oilwell Varco
(NYSE:NOV)would have performed at an average 17.3% per year, resulting in just shy of $2,500.
- Annual returns greater than 18% would have been had with small investments in miner Freeport-McMoRan Copper & Gold
(NYSE:FCX), autoparts retailer AutoZone (NYSE:AZO), or computer graphics card maker NVIDIA (NASDAQ:NVDA).
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 football 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 looking forward to the rest of football season. He owns shares of SYSCO. That company is both a Motley Fool Income Investor and Inside Value pick. National Oilwell Varco and NVIDIA are both Stock Advisor choices. The Motley Fool has a disclosure policy.