Today is your lucky day.
Because I want to fill you in on a little secret that could make you an absolute fortune.
That's because striking it rich on the stockmarket is a dream of most investors, yet it is a common belief that it is only possible for the fund managers and other professionals to achieve.
Many investors are also under the misconception that it requires a lot of money to begin with to make it to the big time.
Both of those assumptions are completely FALSE!
For too long, investors have concluded that making money from shares is simply too hard or too risky, but it's really not!
Sure, it can be if you're not doing it properly – things can certainly turn sour then — but do it right, and the possibilities are endless.
That might be all well and good, but you're interested in how you can make your fortune. So I'll get to the point.
The secret that I want to fill you in on is actually a function known as compounding returns. This tool is understood by most people with a simple maths background, yet its capacity to maximise stockmarket returns is usually not completely comprehended.
In fact, compounding your returns is key to growing your wealth exponentially.
Earlier this week, my fellow Motley Fool writer Tim McArthur highlighted how you could turn a measly $5,000 into a whopping $998,000 in just 40 years.
That can be achieved by maintaining an average annual return of just 7%. You could quite easily hit that target from dividends alone. For example, Telstra Corporation Ltd (ASX: TLS) currently offers a grossed up yield of 7.6%.
Making money on the market really doesn't have to be complicated.
As I mentioned before, this is a very lazy way to making a fortune on the stockmarket.
In fact, more often than not, all you'll be required to do is sit on your hands and do absolutely nothing. Patience and self-control are the two things you'll need to maintain.
So here's how compounding works…
Say your portfolio is currently worth $20,000 and over the next year you achieve the market's average 12% return.
After 12 months, you'll have earned $2,400 and your portfolio will be worth $22,400. Not bad, but wait until you see what happens next….
The next year, you manage to maintain that 12% average again. However, rather than earning $2,400, you would actually earn $2,688.
That's an additional $248 in the second year because the interest you earned is now also working hard for you. To put it simply, you are now earning interest on your interest.
I'm sure you're starting to see just how great this could be…
After just 30 years, that initial $20,000 would have turned into a massive $599,198, assuming that the 12% average annual return was maintained.
But what I really want to show you will make those returns far greater…
Say each of the above variables stayed the same. You still invest an initial $20,000 and achieve the same annual return. But this time, you make a small $1,000 sacrifice on a monthly basis.
Have a look at this…
Instead of having just under $600,000 at the end of those 30 years, your portfolio would instead be worth $3,495,191. That's right, you would have nearly three-and-a-half million dollars.
That'd be well and truly enough to retire on! And this is all made possible by the wonders of compound interest – making your money work for you.
Now all you need to know is which stocks can help you achieve this goal.
At their current prices, I highly doubt it'll be companies like Commonwealth Bank of Australia (ASX: CBA). Instead, I think it will be smaller companies with greater growth prospects. For some ideas on which stocks they might be, check out these two articles, which highlight four stocks which could be bought with $10,000 worth of cash.
Those can be found here, and here.
Alternatively, The Motley Fool's top advisors have also uncovered another small-cap stock with fantastic growth potential which is well worth checking out.
