In a previous job, I helped manage a few nine-figure fortunes -- which was intimidating at first. I mean, an errant mouse click while making a multimillion-dollar trade and you're fired. But eventually the sweats subsided, and I learned the secrets behind this enormous wealth.
How did they do it?
In two easy steps
First, they picked the right stocks. But these weren't the hot-shot fads of the day. Oh, no. A look at their portfolios revealed almost nothing but blue chips such as Procter & Gamble
Second, they let their investments compound over long periods of time. Most of the fortunes were started by family patriarchs or matriarchs who never lived to see the nine-figure promise land. (They did, however, live to see eight figures, which still isn't shabby.) Now, as a result of their wisdom and foresight, the family has a financial legacy to pass down over generations. In fact, many of the beneficiaries of these fortunes live quite comfortably off the dividends from their inheritance.
As much fun as watching paint dry
Now, you probably haven't heard much about the returns of P&G lately. That's because it hasn't more than quadrupled in value in the past two-and-a-half years like Google
Yet many of the nine-figure portfolios had holdings of P&G in excess of $10 million -- with a cost basis of $20,000. That's close to a 50,000% return. Sound impossible with this boring fare? It's not. It just takes time.
For a $20,000 investment to reach $10 million in 50 years, it needs to grow at an annualized rate of 13.2% -- just a few percentage points better than what P&G has achieved over the past 10. According to Wharton professor Jeremy Siegel's most recent book, The Future for Investors, those returns are easier to get when you buy dividend-payers and reinvest their payouts. Fully 86 of the original S&P 500 stocks achieved that 13.2% benchmark from 1957 to 2003. For example:
|
Company Name (2003) |
Accumulation of $20,000 |
Annual |
|---|---|---|
|
Abbott Labs |
$26.3 million |
16.5% |
|
Pfizer |
$21.7 million |
16.0% |
|
PepsiCo |
$17.8 million |
15.5% |
|
Colgate-Palmolive |
$15.6 million |
15.2% |
Not coincidentally, most of the nine-figure fortunes had bought and held some of these very companies for 50 years or more. In some cases, the patriarch instructed his heirs to never sell these positions because they would be the only stocks they'd ever need.
Finding the winners
If you're ready to build your own financial empire, you'll need to start with today's best dividend-payers. If you want some help in that quest, James Early and his Income Investor team can help. They find and recommend companies with quality management and a history of growing dividends. In other words, stocks worth holding for 50 years.
Give the service a shot with a free 30-day trial. There's no obligation to buy, so what do you have to lose -- besides an empire?
This article was originally published on Aug. 10, 2006. It has been updated.
Todd Wenning does not own shares in any of the companies mentioned. Colgate-Palmolive and Pfizer are Inside Value selections. The Motley Fool has an ironclad disclosure policy that even the USS Monitor couldn't knock out of the water.
