If you want to build life-changing wealth in the stock market, you can't go wrong with a buy-and-hold investment approach.
Buying and holding shares of high-quality companies is paramount to investing success because you let your returns compound over time. In fact, Warren Buffett, CEO of Berkshire Hathaway and one of the best investors of the modern age, has compared building wealth to rolling a snowball down a hill -- it grows larger the further down it rolls.
One top-notch company that has been successful in the past few decades is the asset manager BlackRock (BLK 1.35%). BlackRock is a massive player in the exchange-traded fund (ETF) space and has done a spectacular job of growing its business over the years.
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Investing in BlackRock would have produced huge gains
BlackRock manages investments for clients worldwide and is the world's largest asset manager, with over $8.5 trillion in assets under management (AUM) -- ahead of Vanguard Group, UBS Group, and Fidelity.
In 2000 BlackRock wasn't the behemoth it's known as today. The company has done an excellent job of growing its business, which has delivered an eye-opening return. If you had invested $10,000 at the turn of the century, that investment would have grown to over $587,000. To put this in perspective, a $10,000 investment in the S&P 500 index would have turned into $40,000 during that same period.
BLK Total Return Level data by YCharts
BlackRock has capitalized on passive investment trends
BlackRock provides various investments to investors, but is perhaps best known for its ETFs under its iShares brand. The iShares ETFs were initially created in 2000 by Barclays with the help of the inventor of ETFs, Nate Most. An essential move in BlackRock's history occurred in 2009 when it bought iShares from Barclays, putting it in a prime position to capitalize on the growing trend toward passive investing.
Passive investing has grown in popularity because it allows investors to take control of their investments. This has resulted in creating ETFs that match the performance of a specific index, allowing for automated investments with much lower expenses than actively managed funds. From 2008 to today, BlackRock has grown its AUM from $1.3 trillion to $8.5 trillion, a 15% compound annual growth rate thanks in large part to its ETF products.
2022's market volatility has posed a challenge
This year has challenged BlackRock's business, with CEO Larry Fink noting in the company's most recent conference call that the first half of 2022 has been a tougher environment than investors have seen in decades. Investors have weighed high inflation and rapidly increasing interest rates, which have led to the worst start for stocks and bonds in over 50 years.
As a result, investments have lost value. BlackRock's AUM dropped 11% from its high-water mark of $10 trillion last year, and the stock dropped 27% from the start of the year.
Here's why BlackRock can keep winning
Despite the recent volatility in its stock, BlackRock is in a solid position to keep growing its business. The company is building up its fintech product, Aladdin, which could provide a source of growth of recurring revenue through long-term contracts.
The company has also invested heavily in building out its ETFs that provide numerous options for investors, including options for sustainable investment through its environmental, social, and governance (ESG) products. During the company's investor day last year, it projected that the global ETF AUM would grow from $8 trillion in 2020 to over $15 trillion in 2025, which could be a huge tailwind for its future growth. BlackRock has been a stellar performer for decades -- and looks like it is in an excellent position to keep that growth going.
