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A Beginner's Guide to Making Millions

In earlier commentaries, we've shown just how easy it is to make a million bucks. Provided you've got the discipline to sock away the savings -- and the time to let compound interest work its magic -- you too can be a millionaire. Indeed, $500 plunked down monthly in a mere index tracker -- such as the dirt cheap Vanguard 500 Index (FUND: VFINX  ) -- will grow to a million bucks in just under 28 years if the market delivers its historical return of 10.5%.

But what if you want to shoot higher and amass, say, $2 million. Is that just a matter of time and gumption, too?

Not exactly. Needless to say, the bigger the goal, the more critical it is to get your plan right and spring into action posthaste. If you have the stomach for volatility and the wherewithal to put financial independence on the proverbial front burner, though, you can reach your lofty goals. Here's how.

Go growth
Value investing has been all the rage for so long now that it's hard to blame investors -- particularly newbies -- who have come to believe that it's destined to be that way forever. Thing is, growth and value are relative terms, and these days, it's possible to snap up shares of stocks with 15% earnings growth forecasts or better on the relative cheap. Lowe's (NYSE: LOW  ) , Chesapeake Energy (NYSE: CHK  ) , and Sallie Mae (NYSE: SLM  ) , for example, fit that profile, and all three clock in with price-to-earnings ratios below that of the broader market. Best Buy (NYSE: BBY  ) , SanDisk (Nasdaq: SNDK  ) , and XTO Energy (NYSE: XTO  ) , meanwhile, sport P/Es below the industry average.

Why does that matter? Fair question. Here's the fair answer: Taken together, for the 10 years that ended with February, those latter three stocks have delivered an annualized average return of roughly 37%. At that rate, your journey to Two Millionaire Acres would take less than 14 years if you socked away $500 a month. Talk about making good time!

The Foolish bottom line
Make no mistake: It really is true that past performance is no guarantee of future results. The broad point, though, is well worth remembering: Greater risk -- in the form of stocks with earnings growth prospects that make 'em more susceptible to the market willies -- can lead to greater returns over the long haul.

What's more, there are ways of mitigating that risk. Mutual funds come to mind, as does assembling a portfolio that provides exposure to defensive, "capital preservation" plays along with the racier growth stocks.

As it happens, we've covered all those investment types -- and made specific recommendations -- in Motley Fool Green Light, the investing and personal finance service designed with beginners in mind. In the issue that hit the streets yesterday, we provide a cut-to-the-chase retirement account roundup, tips on how to save big bucks on home maintenance costs, and much more.

If that kind of comprehensive approach to your financial life sounds like your cup of tea, check out Motley Fool Green Light with a free 30-day guest pass.

Shannon Zimmerman runs point on the Fool's Champion Funds newsletter service and co-advises Motley Fool Green Light with his pal Dayana Yochim. At the time of publication, he didn't own any of the securities mentioned above. Chesapeake Energy is a Motley Fool Inside Value recommendation. Best Buy is a Stock Advisor pick. You can check out the Fool's strict disclosure policy by clicking right here.


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4/24/2014 12:44 PM
BBY $24.45 Up +0.18 +0.72%
Best Buy CAPS Rating: *
CHK $29.29 Up +0.27 +0.93%
Chesapeake Energy CAPS Rating: ****
LOW $46.97 Up +0.75 +1.61%
Lowe's CAPS Rating: ****
SLM $25.72 Down -0.08 -0.31%
SLM Corp CAPS Rating: ***
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XTO $41.81 Down +0.00 +0.00%
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