Conventional wisdom holds that you need a pile of cash before you can begin to invest successfully in stocks. Investing via direct investment plans turns that notion on its head and proves the opposite can be true. Whether you have $100 or $100,000, what's most important is how soon in life you start to invest and how you invest. A Fool beginning with $100 can be in a better position to succeed than a Wise man with $100,000.

How can this be?

Because discipline, time, and compounding are the three main contributors to successful investing -- not the amount of money that you have to invest.

A new investor possessing little money to start, the right discipline (which many investors unfortunately lack), and more than a few years to be invested (ideally a decade or longer) can use compounding to build a nest egg that tops "big-money" investors' results. The first necessary asset is discipline. How do you acquire it? Many investors are their own worst enemies.

Enter: one great solution.

Direct investment plans provide a framework for successful investing. The discipline includes staying invested at all times, not trading actively, and -- for most investors -- consistently saving money and buying more shares. Direct investing supports all three disciplines. The plans are created for asset accumulation, not made for quick selling, so it is rare that you make a snap decision to dump stock when the market tumbles. The plans also make it easy (and usually free) for you to invest more regularly. Given this, you come to see market declines as long-term opportunities.

The S&P 500 has risen nearly 11% annually, on average and with dividends reinvested, since 1926. This compares to the 2.8% yield that an average savings account will provide. The stock market has been the best-yielding investment available over its history, yet thousands of people have lost money on it. Why? Because it is time that awards you gains.

The stock market declines many years, but when it declines cannot be predicted, so a majority of the time, trying to make forecasts is costly. Studies show that a majority of the stock market's gains take place during a condensed period -- over a number of combined weeks any given year. If an investor misses those weeks, her results suffer. An investor needs to stay invested in leaders, and history demonstrates that the longer you're in, the better.

When you couple the power of a good investment discipline with time, you get a one-two punch. Discipline combined with time results in the desired Foolish outcome: compounding.

To compound your money is to build wealth on top of wealth, as well as on top of your original investment. If you start with $1,000 and you earn 10% in year one, you'll earn $100 and have $1,100. If you earn 10% again in year two, you'll earn $110, not just $100, because your investment base has grown. The following year, another 10% gain will represent an even larger dollar amount earned. Compounding is simple but magical math.

Discipline + Time = Compounding
When you combine the three criteria necessary to build wealth, you get the equation that headlines this paragraph: Discipline + Time = Compounding. In the end, compounding of your dollars is the goal. Write the equation down (D+T=C) and tape it to your computer screen if you too actively watch and worry about stocks. You shouldn't!

The following tables show how various compounding scenarios play out.

The first Fool below began with $500 and added $100 monthly (like Drip Port). The total amount invested at the end of 20 years was $24,500. After 40 years: $48,500. The second Fool (table two) invested $1,000 to start and added $200 per month.

Value when annually
growing:        7%       11%      15%     
Year 1       $1,745    $1,820    $1,866
Year 5        7,868     8,816     9,911
Year 10      18,313    23,194    29,741
Year 15      33,120    48,052    71,528
Year 20      54,112    91,031   159,581
Year 30     126,055   293,806   736,098
Year 40     270,637   899,929 3,295,955
Value when annually     
growing:         7%       11%       15%   
Year 1       $3,550     $3,640      $3,732
Year 5       15,736     17,632      19,822
Year 10      36,626     46,388      59,483
Year 15      66,241     96,105     143,057
Year 20     108,224    182,062     319,163
Year 30     252,110    587,612   1,472,196
Year 40     541,274  1,799,589   6,591,911

There are two important lessons to take away from these tables:

  1. time matters greatly
  2. your annual return matters greatly

A 4% difference in your annual rate of return can make the difference between a $3.2 million portfolio and a $900,000 portfolio. And as for time, notice how most of the value is created in the later years. That is how compounding works, especially when you buy a company at a good value that becomes more and more successful. Most of your wealth is created at the back-end of an investment's life due to compounding. You have to let your money be invested long enough so that it can compound.

If you have questions, visit the related links above. Invest Foolishly this spring -- and help others do so, too. Perhaps send them this column to start! Fool on!

For more, check out Investing Without a Silver Spoon, which Jeff Fischer (TMF Jeff in the Fool Community) wrote. He owns the stocks in the Drip Portfolio. The Motley Fool is investors writing for investors.