While there is an almost never-ending list of ways that you could become rich, not all of them are practical wealth enhancing strategies.
The following four suggestions are certainly far from an exhaustive list, however it’s the fourth strategy which is a viable strategy for just about everyone.
- You could try your luck at winning the lottery. If this is your plan, perhaps consider Powerball in the USA. In January 2016 this lottery had a jackpot of $1.6 billion, which was shared between three lucky winners!
- Pick your parents! Executive Chairman James Packer of Crown Resorts Ltd (ASX: CWN) who is a regular rich list member received a handy head start thanks to the foundations laid by his parents and grandparents.
- Study hard and become a surgeon or expensive lawyer.
- Utilise the power of compounding. Obviously the first three suggestions are of limited strategic appeal given the role of chance, luck and ability required. In contrast, a stringent savings regime, a very good (but not impossibly good) average annual return on your investments and a long runway of time, makes it possible to compound your way to multi-millionaire status.
Consider the maths: $100,000 re-invested at 9% per annum will grow to $3.1 million in 40 years.
While 9% is a strong return, numerous investors around the world have proven it’s possible to not only achieve this rate of return but to beat it.
Some of these top investors are even kind enough to invest on behalf of others!
WAM Capital Limited (ASX: WAM) has returned 17.9% per annum (pa) before expenses, fees and taxes since inception in August 1999.
Meanwhile, Platinum Capital Limited (ASX: PMC) has returned 12.2% pa after fees, but before taxes, since its inception in June 1994.
It’s almost inbuilt into the human psyche to want things yesterday and to dream of getting rich quickly.
When it comes to investing, trying to take shortcuts is bound to lead to mistakes and losses. While utilising the power of compounding won’t turn you into a multi-millionaire overnight, your chance of success is far greater than winning the lotto!
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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.