In the investing game, everyone's searching for the next 10-bagger or big score that can give their portfolio an over-the-top boost. After all, who doesn't want to say that they earned a 50%, 100%, or even 200% return on their chosen investments? Well, what if I told you there was an investment out there that had posted a 1,073,300% return as of the end of last year? You read that right -- that's a more than a 10,000-bagger. It doesn't sound possible, but it is.
Millionaires' club
So exactly what investment has managed to post a 1 million percent return? Look no further than the Pioneer Fund (PIODX). That's right; we're not talking about a penny stock turned high-flying technology blue-chip here. Just a plain ol' everyday large-cap mutual fund. See, this 1 million-plus percent return is what the fund earned since its inception back in February 1928 through the end of December last year. That means if you had put just $1,000 into the fund back then, your portfolio would be worth $10 million today.
Of course, when you break that 1,073,300% return down on an annualized basis, that works out to an 11.85 % return each year since 1928. That's somewhat more than the broader large-cap market has returned over this time period, according to Ibbotson data. But clearly, an investor who had 82 years on his or her hands could have just as easily invested in a broad market index or exchange-traded fund (if those products had existed back then!) and gotten a nice return by now, even if it were a bit short of the million-percent mark.
Time value of money
So, that's nice, you might think. But who has 82 years to sit around and wait for their money to grow? Well in reality, no one does. None of us, outside of maybe Warren Buffett, are going to see 1 million percent returns in our lifetime. But what this does show is the incredible compounding power that can occur over time. When I say investors need to invest for the long-run, this is why!
Over the long run, stock returns really do add up. We've come off a decade that contained two terrible bear markets, but investors who stay committed to the long-term earning power of the market will almost assuredly more than make up that lost ground, if history is any guide.
Secondly, the Pioneer Fund example also shows the power of buying and holding over time, rather than trying to time the market. I'm willing to bet that a hypothetical 1928-era investor who had tried to time the market and get into all the right asset classes and out of all the wrong asset classes at the right times over the years would end up with significantly less than that 1,000,000% return.
Investors are notorious for chasing returns and buying and selling at the wrong times. That means a truly disciplined investor has to keep a focus on the long run and be willing to sell when everyone else is buying and to dive back in when the market is still gripped with fear -- something very difficult to do consistently in practice. This is why it's so important to choose the right investments -- you want funds that you can own for the long haul so you can avoid all that messy market timing junk.
Heading for the horizon
So what other investments are out there that can provide investors with a 1,000,000% return? Well, American Funds Investment Company of America (AIVSX) is currently in second place in the long-term return race, with a 684,327% return since its 1934 inception. More recently, the fund has outranked 85% of all large-cap blend funds over the most recent 15-year period. The management team here focuses on firms that pay a healthy dividend and on those that should be able to boost that dividend payout over time. Right now, that includes higher-yielding firms like AT&T (NYSE: T) and Royal Dutch Shell (NYSE: RDS-A) with a 6.2% and 4.8% yield, respectively, as well as more growth-oriented names like Microsoft (Nasdaq: MSFT), which still generates a respectable 2.3% payout. This fund is a fine long-term core holding.
But you can earn your outsized returns over time with even simpler moves. Even if you don't believe that most actively managed mutual funds can beat the market over time, you can still put the power of long-term compounding to work for you. Here, exchange-traded funds are your best bet.
Some of the better broad-market ETFs include SPDR S&P 500 (NYSE: SPY) or Vanguard Total Stock Market ETF (NYSE: VTI) for primarily large-cap domestic market coverage, Vanguard Small Cap ETF (NYSE: VB) for small-cap coverage, and iShares MSCI EAFE Index (NYSE: EFA) for foreign developed market exposure. Buying and holding these exchange-traded funds over the long run should go a long way toward earning you your own big money return.
While most of us aren't likely to ever see a 1 million percent return on anything we buy, we can still work toward that goal by choosing solid investments and staying committed to our investment program over the years, in good markets or bad.
For more winning mutual fund recommendations and time-tested personal financial planning advice, check out the Fool's Rule Your Retirement service. You can start your free 30-day trial today.
