Today is certainly an uncertain time in the stock market. The market is up, but has it truly recovered? History has shown that the best times to invest are when uncertainty reigns, or even just after it has quieted down a bit.
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 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'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 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 fertilizer supplier Agrium
(NYSE: AGU)10 years ago would be worth $3,900 today -- a beautiful annual return of 23%, even though the company's not even back to the highs it saw in 2008.
- A similar small investment in health insurance provider UnitedHealth Group
(NYSE: UNH)back then would be worth a not-so-small $2,580 today. Growth of 18% per year on average is quite acceptable. Aetna (NYSE: AET)would have done slightly better at more than 19% on average per year, resulting in just shy of $3,000.
- Mining company Freeport McMoRan
(NYSE: FCX), in a completely unrelated industry, also would have turned $500 into nearly $3,000 over the same length of time.
- Annual returns of 17% or more would have been ours with small investments in energy company Southwestern Energy
(NYSE: SWN), defense contractor Lockheed Martin (NYSE: LMT), and retailer Urban Outfitters (Nasdaq: URBN).
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 on Feb. 27, 2007. It has been updated.
Jim Mueller owns shares of SYSCO and Agrium, but no other company mentioned. Sysco and UnitedHealth Group are Motley Fool Inside Value recommendations. UnitedHealth Group is a Motley Fool Stock Advisor selection. SYSCO is a Motley Fool Income Investor recommendation. The Fool owns shares of SYSCO and UnitedHealth Group, and also has a disclosure policy.