It's every Australian's dream to one day become a millionaire.
Yet these days, that's all it seems to be: a dream.
House prices are skyrocketing, making it that much harder for people (young people, in particular) to ever own their home. In fact, the International Monetary Fund reports that Australia boasts the third highest house price-to-income ratio in the world, highlighting that lack of affordability.
Meanwhile, the mining boom has all but gone, leaving many to wonder what the outlook is for our economy over the next few years and indeed, decades.
Unemployment remains at a historically high level; business expenditure plans are at "recessionary" levels while consumer confidence also remains shaky. Meanwhile, interest rates are at a record low and could be set to fall even further, possibly before the end of the year.
The list goes on…
On top of these economic issues, there are plenty of other expenses that are also getting in the way of our dream.
Mortgage payments and expensive holidays; our children's education and those darn utility bills, amongst other hefty outlays.
It is for these reasons that most Australians assume they will never attain that millionaire status.
Why absolutely anybody can become rich – including you
It might surprise you to learn that there are 1.2 million millionaires in Australia, according to a recent Global Wealth Report by Credit Suisse.
Research by Investment Trends shows that a massive 43,500 millionaires were added to that list in 2014 alone, largely due to investment property markets and a rampaging equity market.
In addition, the research also shows there are 580,000 "emerging" high net worth Australians with $500,000 to $1 million in investable assets.
The pleasing thing is, most of these millionaires are actually self-made. They're people just like you and me who didn't necessarily come from wealthy upbringings or inherit strong family businesses. Instead, many actually made their fortunes by investing in publicly traded shares – the same ASX stocks we all have access to.
Just look at Warren Buffett, the world's greatest investor. When he graduated from college, he had less than $10,000 to his name. Now, he's the world's third-richest person with a net worth of US $72.7 billion, according to Forbes.
Granted, it's possible that no investor will ever share the same level of success as Buffett has enjoyed over the last six or so decades. But I'm not kidding when I say that the stock market can be a gold mine for people like you and me.
And regardless of whether or not you're willing to join me, I have a plan that I believe is going to make me very rich, just like those other smart Aussies.
Before I share my plan, let me show you three of the stocks that I believe are going to help me build serious wealth in the years to come.
My three top stocks for long-term wealth (hint: not the banks or Telstra!)
When I buy stocks, I don't want to buy speculative companies that could hit the jackpot in the future. Or ones that could quadruple in price just because an 'expert' says they will…
Instead, I simply look for companies that are trading at reasonable prices and offer significant growth potential.
Put simply, if you're looking for a get-rich-quick scheme, you're not going to find it here. What you will find, however, are three companies that should be bought and held for a very long time.
Luckily for investors, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has fallen considerably below its recent high levels, giving us plenty more bargains to choose from. Even more encouragingly, Goldman Sachs believes now is the best time to buy Australian shares in nearly a decade, while Citi has also chimed in to say the benchmark index will hit 6,000 by the end of the year – and 6,300 in 2016.
Personally, I'd still be avoiding companies such as Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Telstra Corporation Ltd (ASX: TLS) – all of which I still consider to be overvalued.
The companies I'm talking about are the ones I think will, from their current valuations, deliver market-smashing returns in the long run.
Stock #1: Ooh, advertising?
Australia's free-to-air TV networks and other traditional media companies are struggling with slower advertising revenue growth and lower audiences as viewers increasingly turn their attention online (think Facebook and YouTube as just two examples). But while that trend is expected to continue over the coming years, there's one company that's proving traditional advertising still works.
oOh!Media Ltd (ASX: OML), which listed on the Australian share market late last year, is Australia's largest out-of-home advertising company with a market capitalisation of $391 million, and a leading position in each of its operating markets. Out-of-home advertising has recorded significant growth in recent years and has proven to greatly improve an advertising companies' return on investment (ROI) – especially when coupled with TV or other in-home advertising methods, as found by market research firm The Leading Edge.
The logic is that in the home, individuals are becoming increasingly empowered to 'skip' ads altogether whereas outside the home (e.g. at shopping centres, roadside billboards or airports), they will become increasingly exposed to new advertisements, making them more likely to act. This is especially the case now that oOh!Media is increasing its digital-based platform, allowing companies to choose what time, or for how long, their advertisements run for. The success of this strategy should only increase as Australia's population grows.
Although the stock has risen 37% since its debut late last year to trade at $2.59, it could still be a great investment for investors with a long-term focus.
Stock #2: From Xero to Hero
Accounting software provider XERO FPO NZ (ASX: XRO) ("Xero") has taken its shareholders on a rollercoaster ride since its debut on the ASX. Between late 2012 and early 2014, the stock surged more than 870% to max out at around $43 per share before retreating to a low of just $13.76. It has since rebounded to $17.25, but still presents as excellent value for long-term investors.
Xero is a pure cloud-accounting software provider which has become increasingly popular amongst accountants. In fact, it announced that it had surpassed 200,000 Australian customers in March this year (up nearly 100% from its 109,000 customers in March 2014) while it has also become the dominant player in its home New Zealand market. Expansion into the UK and the US also offers investors plenty of excitement for its enormous growth potential.
Before I reveal my #3 stock pick with you, I'll fill you in on my plan to grow my wealth exponentially.
How I lost money… but gained a 'wealth' of knowledge
Like a lot of people, when I first started investing, I was gung-ho on making a quick buck. I wasn't interested in finding the most promising or well-run companies – I just wanted to find a stock that would pop overnight.
Of course, that approach resulted in plenty of disappointment and needless to say, my cash balance took a bit of a beating.
My attitude has completely changed since then. I am no longer focused on making a fortune overnight, but instead employ a much longer-term approach which could see my wealth grow exponentially over the years.
Patience and calm composure are the keys for me, and they should be for you too. While it would be nice to make a sweet fortune overnight, history has proven that long-term buy-and-hold investing delivers far superior results.
In fact, an article by Dr Shane Oliver of AMP Limited earlier in 2014 highlighted that the stock market has grown at an average annual rate of 12% per annum since 1900.
To highlight how incredible that is, consider this simple example:
Say you'd invested just $1 measly dollar in shares in 1900. And since then, you'd reinvested all your dividends and achieved the market's average returns.
Believe it or not, that $1 would now be worth more than $400,000. Imagine how much you'd be worth if you'd invested $100 back then, or even $1000…
So that's my plan. By buying high quality companies trading at reasonable prices, I'm going to hold them over the coming years and let compounding work its magic.
It might not sound that exciting, but I expect the results could be truly incredible.
Stock #3: My favourite ASX pick for the next decade
Woolworths Limited (ASX: WOW) has endured a horrendous run over the last 12 months or so, over which time it has churned out negative news like a newspaper company going out of business. The share price has been punished for it, falling 30% since May 2014.
Woolworths has long been considered one of Australia's largest and most reliable companies. It has developed an incredible track record for earnings and dividend growth, and become a common stock amongst most Australian's portfolios as a result. But more recently, it has fallen victim to the aggressive competition from the likes of Coles, owned by Wesfarmers Ltd (ASX: WES), as well as German discount retailer Aldi.
Management has openly admitted to their mistakes in the running of the business, which ultimately led to the resignation of CEO Grant O'Brien earlier this week – along with the company's second earnings downgrade in the space of four months.
The outlook has suddenly become less clear for the supermarket behemoth, yet I believe the changes being implemented could actually have a positive impact on the business moving forward. To begin with, they're committed to revamping its core supermarket division whilst devoting less time to the struggling Masters division, and a change of leadership may be just what it needs to return to the market's favour.
Although it could certainly fall further from its current price of $27.24, it also represents good value for long-term investors willing to remain patient. While they wait, they can enjoy the company's blockbuster 5.1% fully franked dividend yield, which equates to 7.3% when grossed up for franking credits.
