Get Rich from Long-Term Investing

Wall Street Survivor

How many times have you heard someone say something to the effect of…

…“If only I bought $ 10,000 worth of Company X shares 10 years ago!”

Of course, hindsight is always 20/20.

For example, if you bought $ 10,000 worth of Netflix shares 10 years ago, you would have over $ 600,000 today.

In hindsight, Netflix seems like a painfully obvious “all-in” investment.

By 2009, people were fiending for red envelopes and Blockbuster (R.I.P.) was on life support.

So, why didn’t you hand over ALL your money to Netflix!?!

There may be numerous reasons for not hitting it big on Netflix (or any of the other ultra-successful companies).

However, there are two primary reasons:

  • You didn’t know Netflix was a good buy; or
  • You didn’t want to put all your eggs into one basket.

Of course, there are one-off stories of individuals getting rich off of one stock.

But most investors achieve wealth through the stock market via thousands of different stocks.

To illustrate an example, let’s take “thousands of different stocks” down to ten different stocks.

Here are the facts:

  • You invest your $ 10,000 cash over ten years;
  • Each investment is worth $ 1,000 initially; and
  • You purchase ten different company stocks, including $ 1,000 of Netflix in 2009.

Your other nine holdings purchased between 2009 and 2019 are as follows:

  1. MoviePass;
  2. RadioShack;
  3. Blockbuster;
  4. Kodak;
  5. Sears;
  6. JCPenney;
  7. Barnes & Noble;
  8. A penny stock recommendation from your Uncle Remus; and
  9. Enron (I don’t know where this money went, but it is long gone).

Question: Are you happy with these results in 2019?

Answer: You are jumping for joy in 2019!

Why?

Because you turned $ 10,000 into $ 61,000!

You were wrong 9 out of 10 times…

…and somehow, you made your money back 6x over.

That is right – Netflix is up over 6,000% since 2009.

All of your other investments were complete duds (and one was a Nigerian scam).

So, what does this mean?

  1. You need a mix of stocks to avoid catastrophic losses; and
  2. It only takes a few “homeruns” to make some serious money in the stock market.

Getting Rich with Long-Term Investing

The stock market has enabled countless people to retire and made countless people very rich.

The important thing to know is that these occurrences are not mutually exclusive.

You can retire and get rich with the stock market.

Before starting, you must understand how much money you want in retirement.

You will never get where you want to be without a road map.

Here are a few goal-setting tips:

  • Ask yourself: what do I want (specific goals and what these goals cost)?
  • Consider lifestyle costs – i.e., what does day-to-day living cost.
  • Prioritize your goals.

So, pick a number to start (you can adjust it later).

Compound Interest

The best thing you can do for your financial future is to start saving for retirement early.

If you are in your 20s, time is on your side.

Why?

Because of compound interest is one of your greatest assets.

Compound interest is the ability of your assets to generate earnings.

These earnings are reinvested to generate their own earnings.

But beware – it is an exploding offer!

Let me illustrate this point:

  • Mitchell invests $ 750 per month beginning at age 25.
  • Jeremy invests $ 750 per month beginning at age 35.
  • Dylan invests $ 750 per month beginning at 55.

Each participant lets their money accrue at 7% interest until the age of 65.

Here are the results:

  • Mitchell retires at age 65 with $ 1.92M.
  • Jeremy retires at age 65 with $ 909K.
  • Dylan retires at age 65 with $ 395K.

You know the real kicker?

Mitchell only needed to save $ 180,000 more in his lifetime than Dylan to end up with over $ 1,500,000 extra.

That example is compound interest at its best.

So, what is the moral of the story?

The moral is that compound interest is much more significant for a 20-something than a 40-something.

Lesson #1:  The more you can invest when you are young, the better off you will be.

Index Funds

For compound interest, we assumed a 7% rate of return in all examples.

Accordingly, you may be wondering whether that rate of return is realistic.

We are here to tell you that it is very attainable (with the right investments, of course).

The S&P 500 between 1950 to 2009, adjusted for inflation and account dividends, provided an average annual return of 7%.

You can purchase shares of the Vanguard S&P 500 ETF, which mimics the S&P 500 index.

If the S&P 500 provided an average return over 60 years, it is not unreasonable to expect a similar rate of return going forward.

The best part about index funds is that you can set it and forget it.

No expert knowledge of the stock market required.

Lesson #2: Your retirement savings should be positively correlate with overall market performance.

Buy and Hold Investing

To recap, the stock market averages a 7% rate of return.

So, what does that mean for you?

It means that you need to buy-and-hold to achieve a 7% return on your investment.

I don’t care if the market goes up, down, or through a loop – you weather the storm.

Warren Buffett said it best:

“Nobody buys a farm because they think it’s going to rain next year. They buy it because they think it’s a good investment over 10 or 20 years.”

If you think the stock market is a good investment – don’t sweat the highs and lows – just let it be a good investment.

A buy-and-hold strategy is how you get your 7% rate of return for your retirement savings.

Do not risk buying high and selling low.

Lesson #3: Put your money into index funds and leave it alone.

Boost Your Returns

So, now you know that saving for retirement is attainable.

That is great.

But perhaps you want to retire before you can cash-in on your senior citizen discount.

So, let’s re-visit Mitchell – the guy that took advantage of compound interest and passive investing strategies.

Instead of retiring at 65, he wants to retire much earlier.

Accordingly, he must boost his returns without risking his retirement.

So, how can he accomplish this goal?

Instead of putting all his money into index funds…

…he needs to add individual stocks to his portfolio.

As you saw in our earlier example, it only takes one stock to make individual stock-picking worthwhile.

But what are the downsides on picking individual stocks?

It is the countless hours spent analyzing each stock, of course.

Who has time for that?

Probably not you!

If you don’t have unlimited time, you need to invest in financial experts to do the legwork for you.

Your team of financial experts can present you your options…

…and allow you to make the final decision.

One great option is the Motley Fool Stock Advisor!

Motley Fool Stock Advisor

The Motley Fool Stock Advisor

These financial experts focus on uncovering stocks that can outperform the market.

More specifically, Stock Advisor provides two monthly stock picks – one from Tom Gardner and one from David Gardner.

These are quality picks that you can analyze on your own and determine if you want to buy.

So, how successful have Tom and Dave been picking stocks?

Here are the results:

Expert: Dave Gardner

Stock Pick: Booking Holdings

Return: Over 6,000%

If you purchased 100 shares at $ 20 per share ($ 2,000 initial investment)…

…your $ 2,000 would be worth $ 190,000 today!

2.

Expert: Tom Gardner

Stock Pick: UnitedHealth Group

Return: Over 950%

If you purchased 100 shares at $ 20 per share ($ 2,000 initial investment)…

…your $ 2,000 would be worth $ 28,000 today!

Stock picks like the above are making Motley Fool Stock Advisor in high demand.

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