Sean Williams: If you’ve got $100 that you’re able to stash away on a monthly basis, I’d encourage you to go against the grain and consider investing in individual stocks.
I understand why the idea of buying individual stocks with only $100 being saved per month may not seem appealing. For starters, you’re liable to lose 20% of your investment right off the top with the standard $9.99 commission to buy and sell a stock. Plus, there’s the perception that if you aren’t investing a significant amount of money you’ll never see substantial returns on your investment.
The good news is we can pretty much debunk both theories.
For starters, if you’re willing to do your homework and shop around among brokers, you’re liable to find a great deal. For instance, NerdWallet highlighted TradeKing in 2015 due to its bare-bones $4.95 commission and lack of a minimum deposit requirement. There are a few possible caveats with a low-cost broker, such as inactivity fees or extra costs associated with purchasing stocks trading under $2 per share, but overall a low-cost broker could be a smart move if you’re only putting away $100 per month.
Also, buying individual stocks is going to give you a chance to outperform the broader market averages over the long run. When we’re talking about years or decades of holding a quality stock that may even pay a dividend, what’s 10% lost to commission? Probably not a lot when we’re talking about a market that has historically gained 8% per year. If the commissions are really a bother, you can always build up your savings to $200 or $300 and make regular purchases every two or three months, thus reducing your cumulative commission costs.