If you are ready to grow wealth, this may be the single most important financial table you ever look at in your life, EVER.
The table demonstrates what would happen to a $10,000 investment with varying rates of return over varying time periods. Don’t get nervous or think this is too complicated and that you will never understand. There are only a couple of things you need to understand.
and “Rate of Return” are the two most important elements of growing wealth
#2, You can NOT grow wealth putting your money in a bank and only get a 5% return
#3, If you make just one RIGHT decision in your life, you could grow wealthy in 15 years
Compound Interest Table – Grow Wealth
Year 5% Return 13%
0 $10,000 $10,000 $10,000 $10,000
5 $12,763 $18,424 $37,129 $53,782
10 $16,289 $33,946 $137,858 $289,255
15 $20,789 $62,543 $511,859 $1,555,681
20 $26,533 $115,231 $1,900,496 $8,366,826
25 $33,863 $212,305 $7,056,410 $44,998,796
The “Rates of Return” in the above chart reflect approximately what a CD or Money Market account may pay (5%), the return of the SP500 (13%), and the rate of return you can have through prudent investing in the stock market via individual stocks (30% and 40%). *These rates do fluctuate and are only used for demonstration purposes and are not guaranteed.
Here is one guarantee that I will make. If you only invest your money in a savings account, bank CD, or a money market account, you will NOT grow wealth.
All of those investments are tied to the rate of inflation so the best you can ever hope for is to break even.
If you are extremely nervous about investing in individual stocks, at a bare minimum you need to invest in mutual funds so you might achieve a 13% rate of return. I would suggest No-Load mutual funds such as the Vanguard 500 fund which mirrors the SP500 stock index or other similar indexed funds.
But to ever really grow wealth, you are going to have to take control of your investments. I know what you are thinking…”Is it really possible to get a 30% to 40% return on stocks?” Yes, it is very possible. I have listed below 9 stocks and their rate of return over the past 5 years.
RGA, 5 year annualized rate of return = 28.3% (plus a dividend)
MFC, 5 year annualized rate of return = 61.1% (plus a dividend)
UAM, 5 year annualized rate of return = 88.9% (no dividend)
Y, 5 year annualized rate of return = 29.0% (no dividend)
ZNT, 5 year annualized rate of return = 29.8% (plus a dividend)
MKL, 5 year annualized rate of return = 30.3% (no dividend)
5 year annualized rate of return = 23.3% (plus a dividend)
NFG. 5 year annualized rate of return = 29.7% (plus a dividend)
5 year annualized rate of return = 46.9% (plus a dividend)
*This is not an endorsement to purchase these stocks, merely a sampling of stocks with good 5 year return histories.
The average rate of return for the 9 stocks listed above is 40.8% not including any dividends which might have been paid.
What kind of extravagant businesses are those? Not extravagant at all. The first 7 listed are related to insurance and the last 2 are related to natural gas. Pretty boring really, but they are certainly growing wealth for their investors.
There are many other stocks that could be found that have similar or better rates of return. The stocks listed above are companies that I am familiar with and, in my opinion, appear to be relatively safe investments. At the bottom of this page is a Motley Fool widget. Inside that widget you can click on “mysoftballcoach” to see all of my current stock picks and how they are performing.
One principle to remember that your mother used to preach: Don’t put all of your eggs in one basket. How does that apply to buying stocks? Don’t buy just one stock. It’s important to be diverse and the way you do that in the stock market is to invest in several different stocks and possibly stocks in different sectors, such as, insurance, natural gas, mining, retail, high tech, etc.
How does someone get started investing in the stock market and growing wealth? The first thing you will need to do is set up a brokerage account. Your bank may offer brokerage services or there are numerous ones online. One good brokerage house I have found is Sharebuilder, but by all means shop around and find one you are comfortable with.
Do you remember the first principle you needed to understand from the Compound Rate Table? The first principle is: Time and “Rate of Return” are the two most important elements of growing wealth.
I’ve demonstrated the importance of getting a high rate of return. I’ve shown you there are several stocks in very boring industries that achieve high rates of return. I’ve even shown you where you can monitor my stock picks. Now, YOU just have to take the time to do it.
Good Luck, and just like coaching softball, PLAY TO WIN!