I could write this article the usual way -- by showing you how to turn your thousands into millions through investments in solid, well-known companies. An investment in Procter & Gamble (NYSE: PG ) , for example, has grown by a compound average of 13% annually over the past 20 years, while Apple (Nasdaq: AAPL ) has averaged 22% over the past decade! Not too shabby.
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 Disney (NYSE: DIS ) , Harley-Davidson (NYSE: HOG ) , and Motorola (NYSE: MOT ) .
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 helped me turn $3,000 into $210,000.
Aiming for the stars
Such outsized returns, which Fool co-founder David Gardner has referred to as "the highest possible returns, period," 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. (Even if you spot a Rule Breaker after it has begun ascending, there's a good chance it's not too late to make good money on it.)
We couldn't imagine buying books (and cookware and lawnmowers) on our computers. It would have been odd to think of storefront businesses where people would fill out your tax returns for you. We wouldn't have been able to find low-cost discount stores in small towns across America. These are all companies that broke their industries' molds and introduced newer, better systems.
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 investing in some of the greatest stocks of the next generation, 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 Procter & Gamble, Apple, Wal-Mart, and an S&P 500 index fund. Walt Disney and Wal-Mart are Motley Fool Inside Value selections. Apple, Amazon.com, and Walt Disney are Motley Fool Stock Advisor picks. Procter & Gamble is a Motley Fool Income Investor choice. The Fool owns shares of Procter & Gamble. The Fool is investors writing for investors.