How To Double Your Stock Portfolio In 10 Years
By Owen Raskiewicz
The share market is a great place to invest your money, provided you have a long-term mindset.
Below, I’ll prove it to you…
But first, consider this quote attributed to Albert Einstein: “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.”
By taking a ‘big picture’ approach to investing and being confident in your own ability to analyse and hold publicly listed companies, the share market can be a powerful tool in building up your retirement nest egg.
Why Australians enjoy these key investing advantages
What’s more, Australian investors enjoy advantages that few of our international counterparts are afforded. For example, we can invest through our self-managed superannuation funds (SMSF) for a discounted tax rate and, perhaps more importantly, we get franking credits on dividends.
That is, a discount on our personal tax returns when we report our income. Although it may not seem like it, together, these make a massive difference to what ordinary investors can achieve in the stock market.
But how can you double your money in just 10 years? The answer is simple: compounding returns.
For investors to double their money in a decade, an average annual return of just 7.2% is all that’s needed
Hypothetically, let’s take a well known example such as Telstra (ASX: TLS) so we can see just how easy it is to double an investment portfolio in 10 years.
The stock currently trades around $5.40 per share.
Since Telstra is forecast to pay around a 5.4% fully franked dividend in the next 12 months, it means the share price needs to increase just 1.8% per annum (p.a.) to make up the difference. So, if Telstra reaches just $6.39 in the next decade (which I think it might), you would double your money – assuming the company continued to pay out its current dividend for each of the next 10 years.
Let’s take another, more practical example, and assume you have $20,000 to invest today, but don’t want to put it in one dividend stock and then sit on your hands. You buy growth stocks, add $1,000 per month to your portfolio rain, hail or shine and achieve a rate of return equal to 11.8% p.a. – the ASX’s average return since 1900.
In 10 years, your portfolio will be worth $269,576!
Some top ASX stock ideas to get you started now
If you’re sitting back in awe of these numbers, remember it’s nothing new and long-term investors have been buying and holding stocks for longer than we’ve been alive. But please note that I’m not suggesting you go out and buy the first stock you see – probably Commonwealth Bank of Australia (ASX: CBA) or Woolworths Limited (ASX: WOW) – because you’re unlikely to succeed at achieving 11.8% p.a. with such an investment strategy.
However, by following the guidance of seasoned, likeminded long-term investors you might more than double your money in the next 10 years quite easily…
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The Motley Fool's disclosure policy is accountable. Please remember that investments can go up and down. Past performance is not necessarily indicative of future returns. The Motley Fool does not guarantee the performance of, or returns on any investment. All figures are accurate as of 29 July 2014. Authorised by Bruce Jackson.Any and all advice contained in the above content is general advice that has not taken into account your personal circumstances. Please refer to our Financial Services Guide (FSG) for more information.