Anyone can make a lot of money and be successful in the stockmarket, in fact the secret to success is mainly inside yourself. All you really need is to understand the big picture and then have the maturity to use the system to your advantage.
It's also no big secret the capitalist system is stacked in favour of those who use it to enjoy the power of compounded returns. You don't even need much capital to take advantage of compounded returns yourself, just the discipline and long-term focus.
Let's say a good investor can achieve an average annual 12% return over the next 20 years and has $10,000 to invest today. You then add $1,100 per month and after a year your portfolio is worth $24,400.
Extend that over five years and the kitty's worth $101,481.
Keep making those monthly deposits and achieve the average annual 12% return for 20 years and you would have a portfolio worth $1,047,555. Now you know why some (the rich) know compound interest as the most powerful force in the universe.
It's perfectly possible to achieve an average annual return of 12% in the stockmarket, in fact the S&P/ASX ALL ORDINARIES INDEX (INDEXASX:XAO) has returned more than an average annual 12% between 1900 and 2008. That average return includes the impacts of the Great Depression, the dotcom crash and a negative 43% return in 2008, during the worst of the GFC.
Remember the best way to achieve these kind of returns is by investing for yourself and avoiding the ridiculous fees and expenses charged by investment managers to invest on your behalf. Almost all investment managers will charge an annual management fee, knocking off say 1.75% annually from your return.
Others may charge a little less, but fleece you with additional fees in the good years when the fund outperforms its benchmark, thus seriously limiting your chances of averaging 12% a year. Warning, these kinds of fees can seriously handicap your returns, and are the reason intelligent investors will build their own fee-free self-managed portfolios!
Although some of the fee-charging fund managers would like you to think otherwise, building your own portfolio is not rocket science! Look for blue-chip dividend-paying stocks among the S&P/ASX 200 Index (INDEXASX:XJO) for the best chance of strong long-term risk-adjusted returns. Businesses like Telstra Corporation Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA), Woolworths Limited (ASX: WOW) or Australia and New Zealand Banking Group (ASX: ANZ) are where you should look to start.
You'll want some higher growth stocks too, remember it's not rocket science, the key is to find dividend-paying stocks at great valuations with great outlooks. Just like this slightly lesser known business, it's our current favourite stock idea for your portfolio, get it for absolutely free right now by just entering your email address below!
