Selena Maranjian: If you find yourself in need of more money, you may have considered some of the following options: getting another job, starting to invest (or invest more effectively), buying lottery tickets, or embarking on a life of crime. But you may not have thought about selling stock in yourself.
Eric Allam apparently did. On his Web site, www.investinmeplease.com, he writes: "My name is Eric Allam, and I’m selling stock in me. I’ve invested in companies before, and it’s all so impersonal. I thought, why can’t I buy stock in someone, instead of something. My mom used to always tell me she was investing in me. Well, now everyone can invest in me, if they wish, by buying some EricAllam stock."
Unfortunately, Eric hasn’t thought this all out too well. For starters, his mother’s investments in him could pay off. She’s likely to receive Mother’s Day gifts and hugs for the rest of her life. But do stock investors in Eric get gifts or hugs? Probably not: "Once you buy stock you will now have a vested interest in me, Eric Allam. With every buy order I will send you a certificate of EricAllam ownership." He does actually say that he’ll aim to reward shareholders as he succeeds in life. But this is a nebulous promise.
Next, consider this: "Each stock costs $1. I was thinking about making it a fluctuating price, much like the real market, but that’s where all the corruption comes in (and we all now how corrupted the stock market is). I don’t want corruption of EricAllam stock, it would be a pain to deal with and I don’t want anyone getting taken advantage of. So stock will always be $1." Eric isn’t mimicking the stock market too well here. Stocks are generally supposed to fluctuate in price, along with the value of the underlying company.
If you spend $100 on stock in Eric, in 25 years your stock will apparently be worth … $100. If he eventually rewards you after he succeeds in life, you’ll make some return, but it’s hard to know how much. Let’s say that after 25 years, he sends you a whopping $4 for every dollar you invested. That would still just come out to about a 5.7% average annual return. Can you do better? Probably.
For starters, you could simply invest in a broad-market index fund. Over most of the past century, the stock market has returned an annual average of 10% to long-term investors. Learn more about index funds, which are a kind of mutual fund.
You might also try some carefully selected individual stocks. Over the past 30 years, an investment in General Electric (NYSE: GE) would have increased in value more than 75 times over. An investment in Walgreen (NYSE: WAG) over the past 20 years would have increased more than 30-fold. United Technologies (NYSE: UTX) over the past 30 years? Roughly an 80-fold increase. Of course, not all companies will fare well — that’s why it’s smart to research well before you buy, and to keep tabs on your holdings. (And perhaps get some help from stock analysts.)
If stock investments feel a bit too risky for you, you can still get better returns than an index fund. Just look for exceptional mutual funds with solid long-term track records and attractive prospects. They are out there, though they’re in the minority. We’d love to introduce you to many of them via our Motley Fool Champion Funds newsletter. Try it for free and see fund recommendations from our analyst Shannon Zimmerman. Out of about 34 picks, only two were underwater, and by no more than 2.2%. Together, his picks are beating the S&P 500 and relevant benchmarks by nine percentage points.