Many people in the market are looking for the next big thing. A golden opportunity that slaps them in the face. Riding a share as it goes up and up is possible, but it’s harder than it looks. First you have to find the needle in the haystack. Then you have to be willing to hold on to that share through thick and thin. And there’ll be plenty of thin, volatile times.
We can approach the market looking for a winning lottery ticket for a quick way to riches. Or we can take a much easier, safer route, and still earn 10 times and 20 times our money, or more. It’s all a matter of changing your perspective.
Speculating vs Investing
Rather than thinking in terms of weeks or months, start thinking in terms of years and decades. If you’re not focused on the latter, then sorry, but you’re a speculator, not an investor.
You can still earn massive returns. Consider the following.
If you’re able to earn the market’s average return of 9% per annum, and you reinvest your dividends, compound growth will see you multiply your money like this:
In 8 years you’ll double your money. In 16 years, your return is 4x. In 24 years, your return is 8x. In 32 years, your return is 16x. And finally, after 40 years you’ll have 32 times your money. This means if you invested $10,000, you’d end up with $320,000.
And this is with a market average return, which can be achieved with a broad ASX 200 index fund like the SPDR 200/ETF (ASX: STW). That’s not bad for investing once and then sitting back doing nothing. Yes, you’ll own the banks which are on the nose right now. But you’ll also own other high-quality names like REA Group Limited (ASX: REA), CSL Limited (ASX: CSL) and ARB Corporation Limited (ASX: ARB).
By changing your perspective, multiplying your money many times over is simply a matter of time. The best part is, those returns will be more reliable, more sustainable and more repeatable. Whereas to keep finding 10-baggers through short-term speculation, will mean finding another needle in another haystack.
By thinking long-term and focusing on the decades ahead, you’ll benefit many times over by choosing the buy and hold approach. Here’s why…
You’ll pay fewer commissions. You’ll pay less capital gains tax. You’ll have more free time and less to worry about. If you want your money to grow even faster than the examples above, that’s even easier. Simply save more money so you can add to your holding regularly.
As simple as this sounds, few will follow it. But it’s by far the easiest and safest approach I know for multiplying your money over the long term. Little effort, yet large rewards.
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Motley Fool contributor Dave Gow owns shares of ARB Limited and REA Group Limited. The Motley Fool Australia has recommended ARB Limited and REA Group Limited. 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 Scott Phillips.