Recs

3

A Beginner's Guide to Making Millions

In earlier commentaries, we've shown just how easy it is to make a million bucks. If you've got the discipline to stash away the savings -- and the time to let compound interest work its magic -- you, too, can be a millionaire. If you can plunk down $500 a month in a mere index tracker -- such as the dirt cheap SPDRs (SPY) exchange-traded fund -- your savings will grow to a million bucks in less than 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 determination, too?

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

Go growth
For years, value investing was touted as the key to stock market success, so it's hard to blame investors -- particularly newbies -- who have come to believe that the market is destined to be that way forever. But growth and value are relative terms, and these days, it's possible to grab shares of stocks with double-digit earnings-growth forecasts on the relative cheap. Americredit (NYSE: ACF  ) and First Marblehead (NYSE: FMD  ) , for example, fit the bill, as does Intevac (Nasdaq: IVAC  ) : Despite heaps of potential, they all clock in with price-to-earnings ratios below that of the broader market.

Add Ceradyne (Nasdaq: CRDN  ) , Frontier Oil (NYSE: FTO  ) , and Jos. A. Banks (Nasdaq: JOSB  ) to that list and then add up these numbers: Taken together for the 10 years that ended with September, these three stocks have delivered an annualized average return of 36%. Pick winners like that, and at a comparable rate of return, your journey to Two Millionaire Acres would take less than 14 years on the $500-a-month plan. Talk about making good time.

The rewards of risk
Past performance is no guarantee of future results. But though nothing is guaranteed, the lesson is worth repeating: Greater risk -- in the form of stocks with earnings-growth prospects that make them more susceptible to market ups and downs -- can lead to greater returns over the long haul.

Plus, let's not forget that there are ways of mitigating that risk. Mutual funds come to mind, as does assembling a diversified portfolio that provides exposure to defensive, safer plays to dampen the risk that comes with 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 (and those playing catch-up) in mind.

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.

This is adapted from a Shannon Zimmerman article originally published on March 8, 2007. It has been updated.

At the time of publication, Allyson Cohen didn't own any of the securities mentioned above. First Marblehead is a Motley Fool Hidden Gems and Motley Fool Inside Value recommendation. You can check out the Fool's strict disclosure policy by clicking right here.


Read/Post Comments (0) | Recommend This Article (3)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 538683, ~/Articles/ArticleHandler.aspx, 12/19/2014 8:42:35 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 17,778.15 421.28 2.43%
S&P 500 2,061.23 48.34 2.40%
NASD 4,748.40 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
ACF.DL2 $0.00 Down +0.00 +0.00%
AmeriCredit Corp. CAPS Rating: *
CRDN.DL $0.00 Down +0.00 +0.00%
Ceradyne CAPS Rating: ****
FMD $4.85 Up +2.74 +129.86%
First Marblehead CAPS Rating: ***
FTO.DL2 $0.00 Down +0.00 +0.00%
Frontier Oil Corp CAPS Rating: *****
IVAC $8.09 Up +0.12 +1.51%
Intevac, Inc. CAPS Rating: ***
JOSB $0.00 Down +0.00 +0.00%
Jos. A. Bank Cloth… CAPS Rating: ***

Advertisement