Make Millions From Thousands

I could write this article the usual way -- by showing you how you can turn your thousands into millions through investing in solid, growing companies familiar to most of us. Intel (Nasdaq: INTC), for example, has returned an average of 20% annually over the past 20 years, while Nike (NYSE: NKE) has gained an annual average of 25%. Not too shabby, eh?

Can such returns turn your thousands into millions? Yes, eventually. An investment of merely $10,000 would turn into $1 million in 25 years if it grew at an annual average of 20%, but 20% is a fairly steep average to count on for your stock investments -- a number to which only a select few master investors can aspire. It's safer to have more conservative expectations -- perhaps closer to 10%, the stock market's historical average annual return over most of the past century.

A fine balance
So what should you do if you don't want to wait 50 or more years to make millions? Here's one option: Take a few chances.

With most of your money, you shouldn't take crazy risks. You might want to sock much of it away in a broad-market index fund, such as Vanguard 500 Index (VFINX). That low-cost fund should earn you close to the market's historical return over long periods of time. (One simple way to invest in the S&P 500 is through S&P 500 Depositary Receipts, an exchange-traded fund also known as SPDRs.) Either of these options will instantly invest your money in 500 major American companies, including stalwarts such as Microsoft (Nasdaq: MSFT) and Merck (NYSE: MRK).

Meanwhile, take a few chances and supplement your index with some growth-stock picks. That's what I'm doing in my own investment account. I don't want all of my money in an index fund, because I'd like my portfolio to grow faster than average, so a chunk of my nest egg sits in a variety of individual stocks.

This strategy should help moderate volatility, and it can also allow you to do well with some carefully chosen stocks -- as it did for me, when I turned $3,000 into $210,000.

Aiming for the stars
That kind of return, which came from a classic Rule Breaking company, is too tempting for me to ignore. That's why I'm still on the lookout for young, dynamic companies that are breaking the rules as they grow and prosper. That said, I'll invest only a modest portion of my portfolio in them.

The kinds of companies I'm talking about are tomorrow's FedEx (NYSE: FDX) and Staples (Nasdaq: SPLS). Think about how different the world was before them. If we needed to send something somewhere overnight, we'd either be out of luck or looking at sky-high costs. For office products, we were at the mercy of small or hard-to-find stores with limited selections, or even smaller selections in corners of supermarkets and the like.

(Even Ford was a rule-breaking company once, daring to make a luxury item available to the masses at an affordable price. Just imagine a world without cars -- it's not easy.)

These companies broke their industries' molds and introduced newer, better systems.

Find some rockets
The strategy of seeking out and investing in Rule Breakers certainly requires patience and entails risk, but just one growth rocket has the potential to supercharge an otherwise stodgy index strategy.

If you're interested in some rockets to add to your own portfolio, consider trying our Motley Fool Rule Breakers service free for 30 days, during which time you'll be able to access all past issues and every recommendation. Headed by Fool co-founder David Gardner, Rule Breakers pays special attention to cutting-edge fields such as biotech, alternative energy, and nanotechnology. (In a little more than a year, I've more than tripled my money with one of the newsletter's recommendations, a robotic surgical-equipment maker. Such returns aren't routine, but they can happen.) Check it out to learn more.

This article was originally published on July 7, 2006. It has been updated.

Longtime Fool contributor Selena Maranjian owns shares of Microsoft and an S&P 500 index fund. The Motley Fool owns shares of SPDRs. Intel and Microsoft are Motley Fool Inside Value recommendations. Staples and FedEx are Stock Advisor recommendations. The Fool is investors writing for investors.