3 investment strategies to make your money grow like magic

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When bank savings accounts boast 0.4% interest rates and 10-year Treasury bonds are earning 1.6%, it can be difficult to find the best way to make your money grow. The answer for most is simple: the stock market.

Stocks have long outperformed alternatives over many decades, and the stock market can generate almost magical growth, if you know what you are doing.

Image source: Getty Images.

Check out the table below, containing data from Professor Jeremy Siegel of the Wharton Business School, who calculated the average returns of stocks, bonds, notes, gold and the dollar, between 1802 and 2012:

Asset class

Annualized nominal return

Actions

8.1%

Obligations

5.1%

Invoices

4.2%

Gold

2.1%

US dollar

1.4%

The data source: Long-term actions.

1. Be a long-term investor

A first strategy for pursuing magical financial growth is to be a long-term investor. Here’s how your money can grow over long periods of time with an 8% return, although over your particular investment period you could on average a lot more or less than 8%:

8% growth for:

$ 5,000 invested annually

$ 10,000 invested annually

$ 15,000 invested annually

5 years

$ 31,680

$ 63,359

$ 95,039

10 years

$ 78,227

$ 156,455

$ 234,682

15 years old

$ 146,621

$ 293,243

$ 439,864

20 years

$ 247,115

$ 494,229

$ 741,344

25 years

$ 394,772

$ 789,544

$ 1.2 million

30 years

$ 611,729

$ 1.2 million

$ 1.8 million

35 years

$ 930,511

$ 1.9 million

$ 2.8 million

40 years

$ 1.4 million

$ 2.8 million

$ 4.2 million

Data source: calculations by author.

With enough time, you can become a millionaire or even a multimillionaire – and, of course, the more you can invest each year, the faster you will get there.

2. Use index funds

Index funds are arguably the best way to make your money grow at about the same rate as the overall stock market. There are many index funds out there, so look for low-cost index funds and focus on those that follow broad market indices such as the S&P 500, which is made up of around 500 of the largest US companies.

There are plenty more you might consider (or might find available in your employer’s 401 (k) plan), but here are three great index funds, which you can invest in via a 401 (k), an IRA. or a regular taxable brokerage account:

Respectively, they will make you instantly invest in 80% of the US stock market, the entire US market, or just about the entire global stock market. There are many other good low cost index funds, some of which target bonds and other market segments.

A person in overalls flexes a bicep.

Optionality can give strength to a business. Image source: Getty Images.

3. Prioritize optionality

If you want to aim for a return above the average market return, you will probably want to add carefully chosen individual stocks to your portfolio. You can look for growth stocks and you would do well to consider The Motley Fool’s investment philosophy, which recommends buying 25 or more stocks and aiming to hold them for at least five years. It will even give overvalued stocks a decent chance to grow up to – and beyond – their intrinsic values, and give you a greater chance of having companies that turn into phenomenal long-term performance among your holdings.

As you learn about a lot of companies and decide which ones you want to invest in, consider researching options. A business has a choice if it is able to take new directions while continuing to grow. It may not move in some or all of these directions, but it could. He has the option to do so, if he wishes.

Here are some examples of companies with an option:

  • Netflix (NASDAQ: NFLX) has been paying attention to optionality by suggesting that it could extend to games. It could also generate new income by adding advertising to its offerings.
  • Apple (NASDAQ: AAPL) has demonstrated optionality in its ability to expand its ecosystem to include, say, watches. Its devices, over time, have added more and more features and may add even more, such as health monitoring.
  • Amazon.com (NASDAQ: AMZN) has been optional when it has moved from selling books to selling other things – and later, the ability for other businesses to sell things on its platform.

When studying a business, it helps to consider whether it is capable of taking new directions as it strives to fulfill its mission and achieve its goals. Companies that are limited in what they can do may offer less magical performance.

These are just three approaches for your portfolio to experience magical growth. Find out which ones are best for you and your goals.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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