In earlier commentaries, we've shown just how easy it is to make a million bucks. If you've got the discipline to stash away the savings -- and the time to let compound interest work its magic -- you, too, can be a millionaire. If you can plunk down $500 a month in a mere index tracker -- such as the dirt cheap SPDRs (SPY) exchange-traded fund -- your savings will grow to a million bucks in less than 28 years, if the market delivers its historical return of 10.5%.
But what if you want to shoot higher and amass, say, $2 million? Is that just a matter of time and determination, too?
Not exactly. The bigger the goal, the more critical it is to get your plan right and spring into action immediately. If you have the stomach for volatility and the means to put financial independence on the front burner, you can reach your lofty goals. Here's how.
Go growth
For years, value investing was touted as the key to stock market success, so it's hard to blame investors -- particularly newbies -- who have come to believe that the market is destined to be that way forever. But growth and value are relative terms, and these days, it's possible to grab shares of stocks with double-digit earnings-growth forecasts on the relative cheap. Moody's (NYSE:MCO) and UnitedHealth (NYSE:UNH), for example, fit the bill, as does Ingersoll-Rand (NYSE:IR): Despite heaps of potential, they all clock in with price-to-earnings ratios below that of the broader market.
Then take Southern Copper (NYSE:PCU), NVR (AMEX:NVR), and Holly (NYSE:HOC) and add up these numbers: Taken together for the 10 years that ended with October, these three stocks have delivered an annualized average return of 38%. Pick winners like that, and at a comparable rate of return, your journey to Two Millionaire Acres would take less than 15 years on the $500-a-month plan. Talk about making good time.
The rewards of risk
Past performance is no guarantee of future results. But though nothing is guaranteed, the lesson is worth repeating: Greater risk -- in the form of stocks with earnings-growth prospects that make them more susceptible to market ups and downs -- can lead to greater returns over the long haul.
Plus, let's not forget that there are ways of mitigating that risk. Mutual funds come to mind, as does assembling a diversified portfolio that provides exposure to defensive, safer plays to dampen the risk that comes with growth stocks.
As it happens, we've covered all those investment types -- and made specific recommendations -- in Motley Fool Green Light, the investing and personal finance service designed with beginners (and those playing catch-up) in mind.
If that kind of comprehensive approach to your financial life sounds like your cup of tea, check out Motley Fool Green Light with a free 30-day guest pass.
This is adapted from a Shannon Zimmerman article originally published on March 8, 2007. It has been updated.
At the time of publication, Allyson Cohen didn't own any of the securities mentioned above. Moody's and UnitedHealth are Stock Advisor picks. UnitedHealth is also an Inside Value recommendation. You can check out the Fool's strict disclosure policy by clicking right here.
