One of the major challenges of entering the stock market on a shoestring is brokerage fees. These are fees that you have to pay any time you buy or sell a stock. While there are a number of discount brokerages out there, many of them require that you open an account with anywhere from $500, $1,000, or even more. When you live on minimum wage, saving up that sort of money can be daunting!
Once you open a brokerage account the challenge doesn’t stop there. In order to reap a profit you have to factor in those fees. For instance, the last I checked, a popular Dividend Aristocrat, Proctor and Gamble (PG) was trading at $79.28 a share with a quarterly dividend of $0.717.
Think about this. You work minimum wage. If you’re lucky, you might be able to save up $100 to invest every month or so. That means you will only be able to purchase a single share of the stock at a time. Using my brokerage fee of $6.95 as a guideline, in order to purchase a single share of Proctor and Gamble at $79.28 a person would actually have to spend $86.24 for the privilege. If you were just investing for dividends, it would take you over 27 months just to recoup the fee you paid to buy the stock! I’m not including the potentially increased value of the share itself since appreciation is not guaranteed. In fact, the value of your stock can tank overnight so in reality, when one invests for dividends the safest attitude to have is that you might very well lose the entire price you paid for a stock if the market turns. Even if the market didn’t turn against you, in order to receive a profit from that single share you would have to wait until the stock sold for over $93.19 simply to recoup the amount you paid to buy and sell it!
With that sobering reality, it would be better for the shoestring investor to stash their cash in a savings account.
So how do these big dog investors make money then? They buy in bulk, that’s what they do. It costs the same whether you buy one share or 100 shares so they leverage that to reduce their trading fees to an acceptable level.
Using Proctor and Gamble as an example, if a person bought 100 shares of the company the trading fee works out to seven cents a share to buy, or fourteen cents a share to both buy and sell. The first round of dividends would be $71.70, an amount that completely covers the brokerage fee to purchase the stock and netting a $64.75 profit. Every quarter after that would be pure profit. When the stock increased in price just fourteen cents a share, the brokerage fees would be covered even if you didn’t hold the stock long enough to receive a dividend.
There’s one major problem with that scenario, however. Folks on minimum wage generally don’t have $7,928 to invest at one time. While you can adjust the numbers to accommodate purchasing a smaller amount of shares, one has to be very careful. The goal here is to make a profit–not give it all to the brokerage firms!
My goal here is not to just feather my nest. I want to work out a way that an average person on minimum wage can invest in the stock market and receive a profit. With that in mind I am going to rule out the big dogs as an investment option. While I’m good at saving money I have no desire to save up an entire year’s wage before I could invest.
There has got to be a better way. I have noticed that there are a lot of companies who have seen their stock prices tank starting back in January of this year. I am going to sift through this “bargain bin,” searching for quality companies to invest in. To minimize my trading fees I intend to purchase no less than 50 shares at once, though if at all possible I want to be able to acquire a minimum of 100 shares per purchase.
Is this risky? Yes, it is. I could very well lose every single penny I invest in the stock market using this method but that’s okay. The very worst that can happen is that I have to continue working until I die. Considering the fact that I’d have to do that anyway, the fear doesn’t bother me.
This isn’t the first time I’ve risked everything. When I left my husband, all I had to my name was a ratty old mobile home. I didn’t even have a job when I started but I made it work. I risked it all again when I decided to become a full-time writer. I managed to live on my royalties for several years as a result of that leap.
As for this? This is about more than just me. If I can pull this off, if I can figure out how to play this game and make a profit, I can figure out a way to distil what I’ve learned and teach others how to escape the rat race. I’ll not only achieve my own personal financial freedom, but I’ll be able to help others do it as well.
I’ve got to try.