There's a secret to getting rich in the stock market. It's a secret that's not hard to discover, but it is hard to follow through on. Yet, it's a secret that many perfectly ordinary people have followed to make millions -- sometimes without even their closest friends realizing the extent of their wealth.
If you're reading this report, you're not satisfied with your current financial situation. Whether you've never invested a penny in your life or just haven't gotten the returns you deserve from your investments, by the time you get to the end of this report, you'll know what you need to do to get on the path to a richer retirement today -- including three stocks that can help get you there.
But first, I want to look at one real-life example of how a woman with only a modest income from an ordinary job built up a fairly impressive retirement nest egg -- along with the huge mistake she made that kept her from becoming truly wealthy.
More than 15 years ago, America was introduced to a woman named Oseola McCarty. She was a sterling example of a hard-working American, a Mississippi-born woman. Born in 1908, Oseola faced many of the same economic challenges that everyone in her generation did, from the ravages of the post-World War I recession to the Crash of 1929 and ensuing Great Depression. In addition, Oseola also had to deal with the discrimination that came from segregation in the South.
But none of those challenges kept this modest washerwoman from making do. From dropping out of school in the sixth grade to help her sick aunt to taking on odd jobs whenever she could get them, Oseola grew up with a thrifty lifestyle that she kept her entire life. She never married, choosing to live in a small home, never owning a car, walking everywhere she needed to go.
And more importantly than anything else, Oseola had one habit that would prove to make a huge difference in her finances: Whenever she could, she would set aside part of her meager earnings toward savings.
Specifically, Oseola did what many people do today: She put her extra money in the bank. Over the decades, her nest egg grew -- slowly but surely -- earning interest that she never spent. Once her bankers noticed that her account balances had grown into a substantial sum, they stepped in to help her find higher-yielding investments, including bank CDs and conservative mutual funds.
A few years before she died, Oseola set up a trust to give part of her life savings to the University of Southern Mississippi for scholarships. What shocked millions of Americans was the fact that despite surviving on far less money than most, Oseola built up an estimated $150,000 in savings over her lifetime.
Sure, $150,000 might sound like an impressive feat, especially for someone who faced all those challenges. Given that well over half of all Americans have less than $25,000 saved toward their retirement, Oseola certainly beat the average.
Yet despite that good fortune, Oseola missed out on even greater riches. The reason: by choosing the bank instead of stocks, she put a tight lid on how much her money could grow.
By contrast, many others of modest means did much more by knowing one simple secret: Over long periods of time, the right stocks produce far more wealth than you can earn in bank accounts. Gilmore and Golda Reynolds used that secret to leave $22 million to their hometown of Osgood, Ind., after their deaths. Jay Jensen used it, turning an honest middle-class teacher's salary into several million dollars. Gladys Holm used it, as a secretary who paid attention to her boss' stock picks and building up an eventual bequest of $18 million to a children's hospital.
Now unless you've been living under a rock for the past decade, you might think that investing in stocks is hopelessly out of fashion. After all, between 2000 and 2009, the stock market lost half its value, with investors having had to endure not one but two huge bear markets that did a number on investment portfolios.
But after a huge recovery over the past several years, stocks have recovered most of the ground they had lost and are now getting very close to their all-time highs. That massive bounce-back demonstrates the resiliency of the stock market even during an economic recovery that hasn't been very strong.
Moreover, when you look over the true long run -- decades, not years -- it becomes even clearer that stocks are the best way to generate wealth. Stock market historian Jeremy Siegel has studied stock returns since 1802 and found that over periods of 20 and 30 years, stocks have far greater upside with far less downside than supposedly "safer" investments like bonds or bank accounts.
Siegel knows his stuff. But nothing speaks louder than actual results. Consider: If you bought a single $40 share of Coca-Cola stock back when it first went public in 1919, reinvested all your dividends, and held onto the additional shares you got from stock splits, you'd have shares worth a whopping $10 million right now. And that's just one of the many examples of stocks that have thrived over the decades, delivering true wealth to their long-term shareholders -- for doing nothing more than just watching them grow!
Click below for some smart ways to cash in.
So, now that you know that stocks are the key to long-run riches, the next step is finding the best ones you can ride all the way to retirement. With help from the advisors at our flagship Motley Fool Stock Advisor service, we've unearthed three stocks that show the different investing methods you can use to put together the perfect portfolio.
Many investors remember Internet stocks as the main cause of them becoming a lot poorer from 2000 to 2002. With the end of the tech boom, a lot of companies disappeared -- and plenty of shareholders lost their shirts.
At the time, one company seemed like it wouldn't fare much better than its peers. The company couldn't have had a simpler business model: selling things to people who wanted to buy them. It had some success in making a name for itself in one of the hottest metropolitan areas of the late 1990s, but its biggest asset was the true business visionary it had at the helm.
Nevertheless, that visionary seemed to do nothing but break well-established rules in an attempt to pull his company toward profitability. It allowed its customers to badmouth the company -- on its own website! It expanded its service from a niche market to give its users access to nearly everything they could possibly want. It even opened the door to third-party sellers who wanted to compete with the company.
But that company not only survived the plunge but thrived because of it. And through all this, the company has defied expectations to become the colossus in Internet retail, with a model that competitors have furiously (and mostly fruitlessly) tried to emulate.
The company, of course, is Amazon.com, and it has rewarded those shareholders who saw its potential during the darkest days of the Internet bust. From single-digit prices, the company has delivered gains of thousands of percentage points. Yet even with that success, it has managed to hold onto the ingredients that helped it grow from a fledging start-up to its current status atop the retail world.
Now, Amazon has moved forward with another huge innovation. The world has seen just how big an impact a new electronic device can have on customers. Apple has turned its iPhone and iPad products into must-have gadgets largely by cultivating a huge network of application programmers focused on providing new ways to use those products better, making them more attractive to customers.
Amazon did a similar thing with the initial version of its Kindle e-reader, which made it easier for its customers to buy and read books from the company. But with the release of its own tablets, it's clear that Amazon is willing to do whatever it takes to reap the same networking benefits -- and the long-term profits that come with them.
More importantly, Amazon's not worried about making money from its tablets now. Amazon CEO Jeff Bezos has admitted that its Kindle tablets and e-readers don't produce a profit for the company. Yet that's just another example of its bargain-providing philosophy. It's banking on enough customers jumping on board to build a base of potential lifelong customers -- and then making it as easy as possible for them to spend their money at Amazon by expanding its offerings into as many different niches as it can.
Based on its performance so far, the results have been nothing short of amazing, with Amazon claiming last August that its Kindle Fire represented 22% of U.S. tablet sales. Moreover, early reports suggest that the 2012 holiday season was also strong for the tablet line, with its new larger high-definition Kindle Fire HD model doing particularly well in standing up to Apple's iPad mini. Amazon is clearly leaving no stone unturned in its attempt to stay on top of the biggest technological revolution in years.
Growth stocks like Amazon are great ways to build up huge amounts of wealth. But growth investing isn't the only ticket to riches.
Look at the next page for a stock that even Warren Buffett can get behind right now.
Warren Buffett needs no introduction. His company draws tens of thousands of followers every year to Omaha for its annual shareholder meeting. Investors scrutinize his every word. Companies like Goldman Sachs, General Electric, and Bank of America have given him amazing investment opportunities merely for the status of being worthy of his notice.
Every quarter, investors pore over Buffett's latest disclosures, trying to discover what stocks he thinks are poised to perform the best. Whether it's his long-ago acquisition of shares of Coca-Cola or the more recent landmark purchase of Burlington Northern Santa Fe, people are always looking for hints about where the Oracle of Omaha wants to put his money next.
Interestingly enough, though, most people overlook one stock that Buffett owns. It's unquestionably made him more money than any other pick he ever made. It's a stock that many lucky investors have ridden for decades to truly amazing returns. And although for much of its history, naysayers criticized the stock for never paying a dividend and carrying too high a price tag, that hasn't led this company to change a single thing about how it does business -- and for most of its shareholders, that's exactly how they'd like things to go well into the future.
Much of the time, even Buffett has rejected buying this stock. But in the third quarter of 2011, he changed his tune, saying that the time looked ripe to make an exception to that long-held rule and open up his wallet to pick up shares on the cheap -- and actually managed to buy about $18 million of the stock during that quarter.
It may surprise you, but the stock that Buffett only recently started pushing heavily as a value proposition is his own company, Berkshire Hathaway. There's no denying the amazing wealth that Berkshire has produced for long-term shareholders. With the company's book value having jumped an astounding 513,000% from 1964 to the end of 2011, the original Class A shares of Berkshire stock recently fetched over $140,000 per share, giving a hint of their appreciation from their much more modest levels in the 1960s and 1970s.
Even at those six-figure prices, though, billionaire Buffett thinks Berkshire shares are cheap -- and he's been putting his money where his mouth is. Recently, Berkshire bought back a substantial block of stock from the estate of a long-time shareholder, establishing a new policy authorizing buybacks when the stock trades at less than 1.2 times book value. Yet even with that increase from the previous authorization of 1.1 times book value. Berkshire still doesn't trade very far above that buyback price, fetching a book-value multiple of less than 1.3. With what amounts to an implicit floor under the stock, anyone who buys Berkshire stock right now at current prices has very little to lose -- and all the upside that the Oracle of Omaha provides even at his advanced age of 82.
Value stocks can provide long-term gains that rival those of the top growth stocks. But even investors who invest with a decades-long time horizon still like to see more tangible profits along the way.
Click to the next page to find a stock that combines solid growth prospects with the added benefit of putting a check in your hand every quarter.
Dividend stocks are more popular than ever right now. Seeing your stock price go up is always nice, but getting a cash payment that you can spend or reinvest appeals to investors who want to see concrete evidence of the smart choices they've made with a stock. Today, I want to introduce you to a dividend stock from maybe the most unlikely sector of the market you can think of.
If I mention the steel industry, it probably conjures visions in your head of abandoned industrial zones with decaying mill buildings in Rust Belt cities. The industrial boom that followed World War II was highly profitable for steelmakers, but as changing economic conditions and increasing global competition emerged, the industry went through a huge decline that saw closures of many companies that in today's terms would have seemed too big to fail.
But one company refused to cave in to the decline. Instead, it responded to the huge changes in the economics of steel by doing two things: innovating to make its operations more efficient, and changing the rules of the game to fit its own strengths.
In particular, this company pioneered the use of small "minimills" nearly a half-century ago. That move made the distance between production facilities and the sources where they got their raw materials much smaller. That, in turn, made it easier for the company to stay competitive and to build minimills wherever they were best suited to grab nearby supplies.
The company also was energy conscious even before energy was as big a concern as it is today. By using electric furnaces rather than higher-cost blast furnaces, this company avoids what would otherwise be much larger energy expenditures. And with another look at its crystal ball, this steelmaker figured out early on that by using scrap metal instead of raw pig iron, it can save money and make use of recycled material.
Last but best of all, this company will make you feel good to own it. The steelmaker has never laid off an employee for economic reasons. And with a pay system that's based on performance at every stage of the process, the company rewards workers at all levels who get the job done.
The company is Nucor, and unlike most of its competitors, it combines growth prospects with a healthy dividend that was recently in the 3% to 3.5% range. Having survived the financial crisis with minimal damage, Nucor has seen its shares rise dramatically in anticipation of a pick-up in economic activity throughout the global economy. Even as many of its steel-making peers have been slow to recover from the slowdown within China and other fast-growing emerging markets and have continued to post losses, Nucor has managed to stay ahead of many of its competitors, and its shares have outperformed the bulk of its industry peers. Moreover, when the world economy does return to a steeper growth trajectory, Nucor will be a smart play to capitalize on that growth.
Ideas like this are the bread and butter of our Motley Fool Stock Advisor newsletter. With a track record of picking stocks that soundly beat the market averages, Stock Advisor delivers the stocks that will let you retire rich. That's an advantage that Oseola McCarty never had -- but it's one that you can put to your advantage today.
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All official newsletter returns as of January 18, 2013. All other numbers as of January 23, 2013. The Motley Fool owns shares of Berkshire Hathaway, Apple, Amazon.com, and Coca-Cola. Dan Caplinger owns shares of Berkshire Hathaway.