Make Millions From Thousands

could write this article the usual way -- by showing you how to turn your thousands into millions through investments in solid, well-known companies. ExxonMobil (NYSE: XOM  ) , for example, has returned a market-trouncing compound average of 8.2% annually over the past 10 years, and Nike (NYSE: NKE  ) has averaged 12.3%. Not too shabby.

But can such returns turn your thousands into millions? Yes, eventually. A single investment of merely $10,000 would turn into $1 million in around 26 years if it grew at an annual average of 20%. But that's a fairly steep rate 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. Consider socking much of it away in a broad-market index fund, such as the Vanguard 500 Index (VFINX). That low-cost fund should earn you close to the market's historical return over long periods of time. You might also try 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, such as such as Halliburton (NYSE: HAL  ) and Boeing (NYSE: BA  ) .

But once you've done that, take a few chances and supplement your index with 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. Instead, 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 carefully chosen stocks. It definitely aided me in turning $3,000 into $210,000. (It can also help you zero in on great stocks the Street misses.) If you don't believe me, read fellow Fool Paul Elliott's account of how one stock can change everything. He describes how $1,800, the cost of a fancy TV, can turn into $190,000, the value of an entire home -- provided you break some rules.

Aiming for the stars
Such returns, which come from classic Rule Breaking companies, are 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.

The kinds of companies I'm talking about are tomorrow's United Parcel Service (NYSE: UPS  ) , Best Buy (NYSE: BBY  ) and Lowe's. Think about how different the world was before them. For home-improvement projects, we used to have to go to lots of separate stores for lumber, plumbing, and other supplies. If we wanted to buy a fancy television or stereo system, we didn't easily have a large store to go to where we could see lots of models at once, offered at compelling prices. If we had to send a large package to the other side of the country, we winced at the thought of the cost.

Even Ford was a Rule Breaking company once, too, daring to make a luxury item available to the masses at an affordable price. Just try to imagine a world without cars.

Find a few rockets
Seeking out and investing in Rule Breakers requires patience and entails risk. However, just one growth rocket has the potential to supercharge an otherwise stodgy index strategy.

If you're interested in adding some turbo-boosters to your own portfolio, consider our Motley Fool Rule Breakers service. You can try it free for 30 days, including full access to all past issues and every previous recommendation. Headed by Fool co-founder David Gardner, Rule Breakers pays special attention to cutting-edge fields such as biotech, alternative energy, and nanotechnology. 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 an S&P 500 index fund. Best Buy is a Motley Fool Stock Advisor recommendation. Best Buy and Lowe's are Inside Value recommendations. United Parcel Service is an Income Investor pick. The Fool owns shares of Best Buy. The Fool is investors writing for investors.


Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 07, 2009, at 4:22 PM, rsinj wrote:

    But you didn't turn $3,000 into $210,000 - did you? You didn't sell for a $207,000 profit...nor have you indicated exactly what your profit was - have you?

    Hey, I bought Apple at something like $15 when people were giving the company its last rites earlier this decade. I turned $15.000 into $400,000. Oh, I sold those shares long ago...but they'd be worth $400,000 today.

    Yeah, Paul Elloitt's account is wonderful too - but it's an account of something he didn't do either.

    What is it with you Fools? Do people really care about the Monday morning quarterbacking and what anyone can see looking at history?

    I've seen your articles reposted numerous times over the years and they've as stale as the first time I've read them.

    Again, where is the buttom to "NOT RECOMMEND THIS ARTICLE"? So silly - people can only like/recommend - nobody dislikes or thinks this article stinks? Or MF doesn't want to hear about criticism or let anyone know that some people do not agree with every article being posted?

  • Report this Comment On December 08, 2009, at 8:30 AM, lotontech wrote:

    It certainly is possible to make millions from thousands -- and in as little as six months! But before you get too excited, let me tell you the full story.

    As a real-life example in a book I was writing at the time, and for a blog posting imaginatively titled "3123% in only Six Months!" (I'm not allowed to hyperlink it here), I turned an initial stake of only £300 -- let's pretend its dollars -- into more than £9000 between March 2009 and August 2009. With hindsight I should have 'scaled up' so as to turn $35,000 into > $1m. Truly millions from thousands. But I didn't :-(

    My main point is that this was not achieved merely by clever stock-picking, but also through an effective combination of Leverage, Position Sizing, Pyramiding, and -- most crucial of all -- Stop Orders.

    It worked for me, but it's very "Foolish".

  • Report this Comment On December 08, 2009, at 8:32 AM, lotontech wrote:

    Oh, and I meant it's NOT a very "Foolish" strategy ;-)

  • Report this Comment On December 08, 2009, at 8:33 AM, lotontech wrote:

    Oh, and I meant it's NOT a very "Foolish" strategy ;-)

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