If you're a young person today, you have the best investing advantage in the world: Time.
Due to the miracle of compounding investment returns, investing a small amount today in a winning investment idea has the potential to fund your entire retirement -- that is, if the idea is good enough, and if you hold for the long-term.
Don't believe me? Consider the track record of the world's best long-term value investor: Warren Buffett. If you had the luck of knowing Buffett back when he initially took over the struggling New England textile business Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) in 1964, and had the ability to invest just $1,000, your retirement would be more than set right now.
Don't believe that just $1,000 could fund your entire retirement? You may be surprised.
A pretty good "mistake"
Berkshire Hathaway had already existed as a public company before Buffett took it over. It actually traces its roots all the way back to 1839, and became a large textile manufacturer in New England over the next 130 years. Buffett began buying shares of the company through his investment partnership in 1962. In 1964, Berkshire's owner made an offer to buy out Buffett's shares for $11.50 each, which Buffett agreed to. However, when the offer came in, it was for $11.375, below the agreed-upon price. This made Buffett so angry that he decided to buy the rest of the company instead of selling, then fired the CEO that had slighted him.
Unfortunately, Berkshire Hathaway was a declining business, and was eventually shut down in 1985; but in the meantime, Buffett and his partner Charlie Munger took the cash flow from its operations, then diversified into insurance and many other businesses, using their value investing acumen to reap huge gains over time.
Buffett's early insurance wins came from investments in National Indemnity and GEICO, which Berkshire now owns, along with consumer businesses such as See's Candies and The Washington Post. Berkshire then compounded those gains with larger and larger investments in more recent years, including BNSF railroad and Midwestern Energy in the early 2000s.
In terms of public market investments, Buffett made a killing investing in Coca-Cola (NYSE:KO), Capital Cities/ ABC, and Gillette in the 1980s, then Wells Fargo (NYSE:WFC) in the 1990s. During the financial crisis of 2008, Buffett scooped up a large number of U.S. financial institutions, including Goldman Sachs (NYSE:GS) and Buffett's current favorite bank, Bank of America (NYSE:BAC). More recently, Buffett has bought stakes in all four major U.S. airlines, and over the 2016-2017 time frame took his largest public stock position of all in Apple (NASDAQ:AAPL).
A cool $26.6 million
Between 1964, the year that Buffett took over Berkshire, and 2018, Berkshire's market value has compounded at a stunning 20.5% annual rate, appreciating a whopping 2,472,627% over that period. Thus far in 2019, Berkshire's stock has gained almost 8% to $329,225 per A share. Berkshire has never split its A shares, though it introduced more modestly priced B shares in 1996.
Thus, from 1964 through November of 2019, Berkshire's stock is up 2,666,178%. That means if you had invested $1,000 in Berkshire back then -- perhaps because of your instinctual "belief in new management" under Buffett -- that stake would be worth a stunning $26.7 million today.
Needless to say, it can pay off -- and pay off big -- to seek out winning investments you can hold for the long-term. As Berkshire's stunning returns show, 54 years of compounding can turn just $1,000 into many millions, giving financial independence to you and your family in your later years. While it would be hard to match Buffett's long-term returns, the example shows that, given enough time, prudently adding even small sums of money to your investment account in high-quality businesses with good management can lead to a healthy and prosperous retirement.