Investing in a growth stock periodically
I would encourage you to read The Warren Buffett Way.  Its a short read and available from most libraries as an audio book.  It should address most of the ignorance that your post displays.   Short term prices, offered in the market, do not necessarily reflect the future value of a company.  In the short term the market is a popularity contest, in the long run prices increases based on the performance of the company.  How much free cash flow (and related metrics) does the company generate.  You seem way overly concerned with short term price fluctuations and as such you are more speculating. Expecting a 10 bagger in 2-3 years is unrealistic.  Has it happened, sure, but it is a rare thing.  Most would be happy to have a 2 bagger in that time frame. If I was in your shoes I'd buy the stock, and watch it.  Provided management meet my expectations and made good business decisions I would hold it and add to my position as I was able and the market was willing to sell me the company at a good price.   It is good to look at index funds as a diversification.   Assuming everything goes perfectly, in 2-3 years, you would have an extra 1K dollars.  Big deal.  How much money could you earn during that time period?  Simply by working at a fairly humble job you should be able to earn between 60K and 90K during that time.  If you stuck 10% of that income into a savings account you would be far better off (6K to 9K) then if this stock actually does double.  Hopefully that gets you thinking. Staring out is about earning and saving/investing.  Start building funds that can compound.  Very early on, the rate of return (provided it is not negative) is very unimportant.  The key is to get money to compound!
First, you need to understand that not  every investor's goals are the same. Some investors are investing for income. They want to invest in a profitable company and use the profit from the company as income. If that investor invests only in stocks that do not pay a dividend, the only way he can realize income is to sell his investment. But he can invest in companies that pay a regular dividend and use that income while keeping his investment intact.  Imagine this: Let's say I own a profitable company, and I offer to sell you part ownership in that company. However, I tell you this upfront: no matter how much profit our company makes, you will never get a penny from me. You will be getting a stock certificate - a piece of paper - and that's it. You can watch the company grow, and you can tell yourself you own it, but the only way you will personally benefit from your investment would be to sell your piece to someone else, who would also never see a penny in profit. Does that sound like a good investment? The fact of the matter is, stocks in companies that do not distribute dividends do have value, but this value is largely based on the potential of profits/dividends at some point in the future. If a company vows never ever to pay dividends, why would anyone invest?  An investment would be more of a donation (like Kickstarter) at that point.  A company that pays dividends is possibly past their growth stage. That doesn't necessarily mean that they have stopped growing altogether, but remember that an expansion project for any company does not automatically yield a good result. If a company does not have a good opportunity currently for a growth project, I as an investor would rather get a dividend than have the company blow all the profit on a ill-fated gamble. Your example shows a 4% dividend.  If we assume the stock continues to yield 4%, the math drops to something simple. Rule of 72 says your shares will double in 18 years. So in 18 years, 1000 shares will be 2000, at whatever price it's trading.  Shares X (1.04)^N years = shares after N years. This is as good an oversimplification as any. "I read the book, and I'm willing to believe you'd have a good chance of beating the market with this strategy - it is a reasonable, rational, and mechanical investment discipline. I doubt it's overplayed and overused to the point that it won't ever work again. But only IF you stick to it, and doing so would be very hard (behaviorally). Which is probably why it isn't overplayed and overused already. This strategy makes you place trades in companies you often won't have heard of, with volatile prices. The best way to use the strategy would be to try to get it automated somehow and avoid looking at the individual stocks, I bet, to take your behavior out of it. There may well be some risk factors in this strategy that you don't have in an S&P 500 fund, and those could explain some of the higher returns; for example, a basket of sketchier companies could be more vulnerable to economic events. The strategy won't beat the market every year, either, so that can test your behavior. Strategies tend to work and then stop working (as the book even mentions). This is related to  whether other investors are piling in to the strategy and pushing up prices, in part.  But also, outside events can just happen to line up poorly for a given strategy; for example a bunch of the ""fundamental index"" ETFs that looked at dividend yield launched right before all the high-dividend financials cratered. Investing in high-dividend stocks probably is and was a reasonable strategy in general, but it wasn't a great strategy for a couple years there. Anytime you don't buy the whole market, you risk both positive and negative deviations from it. Here's maybe a bigger-picture point, though. I happen to think ""beating the market"" is a big old distraction for individual investors; what you really want is predictable, adequate returns, who cares if the market returns 20% as long as your returns are adequate, and who cares if you beat the market by 5% if the market cratered 40%. So I'm not a huge fan of investment books that are structured around the topic of beating the market. Whether it's index fund advocates saying ""you can't beat the market so buy the index"" or Greenblatt saying ""here's how to beat the market with this strategy,"" it's still all about beating the market. And to me, beating the market is just irrelevant. Nobody ever bought their food in retirement because they did or did not beat the market. To me, beating the market is a game for the kind of actively-managed mutual fund that has a 90%-plus R-squared correlation with the index; often called an ""index hugger,"" these funds are just trying to eke out a little bit better result than the market, and often get a little bit worse result, and overall are a lot of effort with no purpose. Just get the index fund rather than these. If you're getting active management involved, I'd rather see a big deviation from the index, and I'd like that deviation to be related to risk control: hedging, or pulling back to cash when valuations get rich, or avoiding companies without a ""moat"" and margin of safety, or whatever kind of risk control, but something. In a fund like this, you aren't trying to beat the market, you're trying to increase the chances of adequate returns - you're optimizing for predictability. I'm not sure the magic formula is the best way to do that, focused as it is on beating the market rather than on risk control. Sorry for the extra digression but I hope I answered the question a bit, too. ;-)" "A growth fund is looking to invest in stocks that will appreciate in stock price over time as the companies grow revenues and market share. A dividend fund is looking to invest in stocks of companies that pay dividends per share.  These may also be called ""income"" funds. In general, growth stocks tend to be younger companies and tend to have a higher volatility - larger up and down swings in stock price as compared to more established companies.  So, growth stocks are a little riskier than stocks of more established/stable companies. Stocks that pay dividends are usually more established companies with a good revenue stream and well established market share who don't expect to grow the company by leaps and bounds.  Having a stable balance sheet over several years and paying dividends to shareholders tends to stabilize the stock price - lower volatility, less speculation, smaller swings in stock price.  So, income stocks are considered lower risk than growth stocks.   Funds that invest in dividend stocks are looking for steady reliable returns - not necessarily the highest possible return. They will favor lower, more reliable returns in order to avoid the drama of high volatility and possible loss of capital. Funds that invest in growth stocks are looking for higher returns, but with that comes a greater risk of losing value.  If the fund manager believes an industry sector is on a growth path, the fund may invest in several small promising companies in the hopes that one or two of them will do very well and make up for lackluster performance by the rest. As with all stock investments, there are no guarantees.  Investing in funds instead of individual stocks allows you invest in multiple companies to ride the average - avoid large losses if a single company takes a sudden downturn.  Dividend funds can lose value if the market in general or the industry sector that the fund focuses on takes a downturn." Avoiding tobacco, etc is fairly standard for a fund claiming ethical investing, though it varies. The hard one on your list is loans.  You might want to check out Islamic mutual funds. Charging interest is against Sharia law.  For example: http://www.saturna.com/amana/index.shtml From their about page: Our Funds favor companies with low price-to-earnings multiples, strong   balance sheets, and proven businesses. They follow a value-oriented   approach consistent with Islamic finance principles. Generally, these   principles require that investors avoid interest and investments in   businesses such as liquor, pornography, gambling, and banks. The Funds   avoid bonds and other conventional fixed-income securities. So, it looks like it's got your list covered.  (Not a recommendation, btw. I know nothing about Amana's performance.) Edit: A little more detail of their philosophy from Amana's growth fund page: Generally, Islamic principles require that investors share in profit   and loss, that they receive no usury or interest, and that they do not   invest in a business that is prohibited by Islamic principles. Some of   the businesses not permitted are liquor, wine, casinos, pornography,   insurance, gambling, pork processing, and interest-based banks or   finance associations. The Growth Fund does not make any investments that pay interest. In   accordance with Islamic principles, the Fund shall not purchase   conventional bonds, debentures, or other interest-paying obligations   of indebtedness. Islamic principles discourage speculation, and the   Fund tends to hold investments for several years. What is your investing goal? And what do you mean by investing? Do you necessarily mean investing in the stock market or are you just looking to grow your money? Also, will you be able to add to that amount on a regular basis going forward? If you are just looking for a way to get $100 into the stock market, your best option may be DRIP investing. (DRIP stands for Dividend Re-Investment Plan.) The idea is that you buy shares in a company (typically directly from the company) and then the money from the dividends are automatically used to buy additional fractional shares. Most DRIP plans also allow you to invest additional on a monthly basis (even fractional shares). The advantages of this approach for you is that many DRIP plans have small upfront requirements. I just looked up Coca-cola's and they have a $500 minimum, but they will reduce the requirement to $50 if you continue investing $50/month. The fees for DRIP plans also generally fairly small which is going to be important to you as if you take a traditional broker approach too large a percentage of your money will be going to commissions. Other stock DRIP plans may have lower monthly requirements, but don't make your decision on which stock to buy based on who has the lowest minimum: you only want a stock that is going to grow in value. They primary disadvantages of this approach is that you will be investing in a only a single stock (I don't believe that can get started with a mutual fund or ETF with $100), you will be fairly committed to that stock, and you will be taking a long term investing approach. The Motley Fool investing website also has some information on DRIP plans : http://www.fool.com/DRIPPort/HowToInvestDRIPs.htm . It's a fairly old article, but I imagine that many of the links still work and the principles still apply If you are looking for a more medium term or balanced investment, I would advise just opening an online savings account. If you can grow that to $500 or $1,000 you will have more options available to you. Even though savings accounts don't pay significant interest right now, they can still help you grow your money by helping you segregate your money and make regular deposits into savings. Investing in companies because they are successful and growing is a common fallacy. Their stocks usually don't perform any better than average stocks because you get what you pay for. You have to consider valuation even when selecting growth stocks. "I'd agree that this can seem a little unfair, but it's an unavoidable consequence of the necessary practicality of paying out dividends periodically (rather than continuously), and differential taxation of income and capital gains. To see more clearly what's going on here, consider buying stock in a company with extremely simple economics: it generates a certain, constant earnings stream equivalent to $10 per share per annum, and redistributes all of that profit as periodic dividends (let's say once annually). Assume there's no intrinsic growth, and that the firm's instrinsic value (which we'll say is $90 per share) is completely neutral to any other market factors. Under these economics, this stock price will show a ""sawtooth"" evolution, accruing from $90 to $100 over the course of a year, and resetting back down to $90 after each dividend payment. Now, if I am invested in this stock for some period of time, the fair outcome would be that I receive an appropriately time-weighted share of the $10 annual earnings per share, less my tax. If I am invested for an exact calendar year, this works as I'd expect: the stock price on any given day in the year will be the same as it was exactly one year earlier, so I'll realise zero capital gain, but I'll have collected a $10 taxed dividend along the way. On the other hand, what if I am invested for exactly half a year, spanning a dividend payment? I receive a dividend payment of $10 less tax, but I make a capital loss of -$5. Overall, pre-tax, I'm up $5 per share as expected. However, the respective tax treatment of the dividend payment (which is classed as income) and the capital gains is likely to be different. In particular, to benefit from the ""negative"" taxation of the capital loss I need to have some positive capital gain elsewhere to offset it - if I can't do that, I'm much worse off compared to half the full-year return. Further, even if I can offset against a gain elsewhere the effective taxation rates are likely to be different - but note that this could work for or against me (if my capital gains rate is greater than my income tax rate I'd actually benefit). And if I'm invested for half a year, but not spanning a dividend, I make $5 of pure capital gains, and realise a different effective taxation rate again. In an ideal world I'd agree that the effective taxation rate wouldn't depend on the exact timing of my transactions like this, but in reality it's unavoidable in the interests of practicality. And so long as the rules are clear, I wouldn't say it's unfair per se, it just adds a bit of complexity." "You can certainly try to do this, but it's risky and very expensive. Consider a simplified example. You buy 1000 shares of ABC at $1.00 each, with the intention of selling them all when the price reaches $1.01. Rinse and repeat, right? You might think the example above will net you a tidy $10 profit. But you have to factor in trade commissions. Most brokerages are going to charge you per trade. Fidelity for example, want $4.95 per trade; that's for both the buying and the selling. So your 1000 shares actually cost you $1004.95, and then when you sell them for $1.01 each, they take their $4.95 fee again, leaving you with a measly $1.10 in profit. Meanwhile, your entire $1000 stake was at risk of never making ANY profit - you may have been unlucky enough to buy at the stock's peak price before a slow (or even fast) decline towards eventual bankruptcy.  The other problem with this is that you need a stock that is both stable and volatile at the same time. You need the volatility to ensure the price keeps swinging between your buy and sell thresholds, over and over again. You need stability to ensure it doesn't move well away from those thresholds altogether. If it doesn't have this weird stable-volatility thing, then you are shooting yourself in the foot by not holding the stock for longer: why sell for $1.01 if it goes up to $1.10 ten minutes later? Why buy for $1.00 when it keeps dropping to $0.95 ten minutes later? Your strategy means you are always taking the smallest possible profit, for the same amount of risk. Another method might be to only trade each stock once, and hope that you never pick a loser. Perhaps look for something that has been steadily climbing in price, buy, make your tiny profit, then move on to the next company. However you still have the risk of buying something at it's peak price and being in for an awfully long wait before you can cash out (if ever). And if all that wasn't enough to put you off, brokerages have special rules for ""frequent traders"" that just make it all the more complicated. Not worth the hassle IMO." 2.5 years is a short period in the stock market. That means there is a significant chance it will be lower in 2.5 years, whereas it is very likely to be higher over a longer time period like 5-10 years. So if you want the funds to grow for sure then consider an online savings account, where you might earn 1-2%.  If you want to do stocks anyway, but don't have any idea what fund to buy, the safest default choice is to buy an index fund that tracks the S&P 500. Vanguard's VFINX is one example. It is not unheard of. Celebrity investors such as Warren Buffet and Carl Icahn gained notoriety by more than doubling investments some years, with a few very stellar trades and bets. Doubling, as in a 100% gain, is actually conservative if you want to play that game, as 500%, 1200% and greater gains are possible and were achieved by the two otherwise unrelated people I mentioned. This reality is opposite of the comparably pitiful returns that Warren Buffet teaches baby boomers about, but compounding on 2-5% gains annually is a more likely way to build wealth. It is unreasonable to say and expect that you will get the outcome of doubling an investment year over year. "is it worth it? You state the average yield on a stock as 2-3%, but seem to have come up with this by looking at the yield of an S&P500 index.  Not every stock in that index is paying a dividend and many of them that are paying have such a low yield that a dividend investor would not even consider them.  Unless you plan to buy the index itself, you are distorting the possible income by averaging in all these ""duds"". You are also assuming your income is directly proportional to the amount of yield you could buy right now.  But that's a false measure because you are talking about building up your investment by contributing $2k-$3k/month.  No matter what asset you choose to invest in, it's going to take some time to build up to asset(s) producing $20k/year income at that rate.  Investments today will have time in market to grow in multiple ways. Given you have some time, immediate yield is not what you should be measuring dividends, or other investments, on in my opinion.  Income investors usually focus on YOC (Yield On Cost), a measure of income to be received this year based on the purchase price of the asset producing that income.  If you do go with dividend investing AND your investments grow the dividends themselves on a regular basis, it's not unheard of for YOC to be north of 6% in 10 years.  The same can be true of rental property given that rents can rise. Achieving that with dividends has alot to do with picking the right companies, but you've said you are not opposed to working hard to invest correctly, so I assume researching and teaching yourself how to lower the risk of picking the wrong companies isn't something you'd be opposed to. I know more about dividend growth investing than I do property investing, so I can only provide an example of a dividend growth entry strategy: Many dividend growth investors have goals of not entering a new position unless the current yield is over 3%, and only then when the company has a long, consistent, track record of growing EPS and dividends at a good rate, a low debt/cashflow ratio to reduce risk of dividend cuts, and a good moat to preserve competitiveness of the company relative to its peers.  (Amongst many other possible measures.)  They then buy only on dips, or downtrends, where the price causes a higher yield and lower than normal P/E at the same time that they have faith that they've valued the company correctly for a 3+ year, or longer, hold time. There are those who self-report that they've managed to build up a $20k+ dividend payment portfolio in less than 10 years.  Check out Dividend Growth Investor's blog for an example.  There's a whole world of Dividend Growth Investing strategies and writings out there and the commenters on his blog will lead to links for many of them. I want to point out that income is not just for those who are old.  Some people planned, and have achieved, the ability to retire young purely because they've built up an income portfolio that covers their expenses.   Assuming you want that, the question is whether stock assets that pay dividends is the type of investment process that resonates with you, or if something else fits you better.  I believe the OP says they'd prefer long hold times, with few activities once the investment decisions are made, and isn't dissuaded by significant work to identify his investments.  Both real estate and stocks fit the latter, but the subtypes of dividend growth stocks and hands-off property investing (which I assume means paying for a property manager) are a better fit for the former.  In my opinion, the biggest additional factor differentiating these two is liquidity concerns.  Post-tax stock accounts are going to be much easier to turn into emergency cash than a real estate portfolio.  Whether that's an important factor depends on personal situation though." You could buy debt/notes or other instruments that pay out periodically.  Some examples are  If there is an income stream you can discount the present value and then buy it/own the rights to income stream. Typically you pay a discounted price for the face value and then receive the income stream over time. Sad part is that you aren't going to make meaningful gains with small account like that unless you are putting everything into one stock and trying to squeeze out 10% gains each trade. At this point, your main focus contributing money into the account regularly. You will be able to trade more frequently as you get more money into the account. Katherine from Betterment here.  I wanted to address your inquiry and another comment regarding our services.  I agree with JAGAnalyst - it's detrimental to your returns and potential for growth if you try to time the market.  That's why Betterment offers customized asset allocation for each portfolio based on the nature of your goal, time horizon, and how much you are able to put towards your investments.  We do this so regardless of what's happening in the markets, you can feel comfortable that your asset allocation plus other determining factors will get you where you need to go, without having to time your investing.  We also put out quite a bit of content regarding market timing and why we think it's an unwise practice.  We believe continuously depositing to your goal, especially through auto-deposits, compounding returns, tax-efficient auto-rebalancing, and reinvesting dividends are the best ways to grow your assets. Let me know if you would like additional information regarding Betterment accounts and our best practices.  I am available at buck@betterment.com and am always happy to speak about Betterment's services. Katherine Buck, Betterment Community Manager