3 Investing Strategies to Grow Your Money Like Magic

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“A dream does not become reality through magic;
it takes sweat, determination, and hard work. “
– Colin Powell

It’s hard to argue with Secretary Powell. Most of our dreams and daydreams will remain just that – wishful thinking – unless we take action. And for big dreams, it generally requires a lot of action to achieve them.

Still, if you’d like to build great wealth, you will have to expend some effort. But it can definitely be magical watching your $ 10,000 become $ 50,000, then $ 250,000, and then one day, perhaps $ 1 million or more. Here are three approaches to investing that can help grow your money like magic.

Image source: Getty Images.

Stick with stocks

For starters, if your goal is to get wealthy over many years, it’s hard to beat the stock market as a way to get there. Check out the table below, featuring data from Wharton Business School Professor Jeremy Siegel, who calculated the average returns for stocks, bonds, bills, gold, and the dollar between 1802 and 2012:

Asset Class

Annualized Nominal Return

Stocks

8.1%

Bonds

5.1%

Bills

4.2%

Gold

2.1%

US Dollar

1.4%

Source: Stocks for the Long Run, by Jeremy Siegel. Chart by author.

Stocks reign supreme over shorter periods, too. For example, Siegel found that between 1926 and 2012, stocks grew at an average annual rate of 9.6%, vs. 5.7% for long-term government bonds.

So how can you invest in the stock market? Arguably, the best way is via low-fee, broad-market index funds – which even Warren Buffett has recommended for most investors. The SPDR S&P 500 ETF (SPY -2.74% ), for example, is a very popular one in exchange-traded fund (ETF) form. It tracks the S&P 500so it invests in the same stocks in the index and delivers just about the same return (less very small fees).

2. Be patient

A second effective strategy for getting wealthy (or at least wealthier) can be hard to do, but it’s quite powerful. Build up your patience muscles and prepare to stick it out for many years, if not decades. Check out how various sums invested annually can grow over time:

Growing at 8% for

$ 10,000 Invested Annually

$ 15,000 Invested Annually

$ 20,000 Invested Annually

5 years

$ 63,359

$ 95,039

$ 126,718

10 years

$ 156,455

$ 234,683

$ 312,910

15 years

$ 293,243

$ 439,865

$ 586,486

20 years

$ 494,229

$ 741,344

$ 988,458

25 years

$ 789,544

$ 1,184,316

$ 1,579,088

30 years

$ 1,223,459

$ 1,835,189

$ 2,446,918

Calculations by author.

You might think it’s not so hard to be patient, but it really can be – especially if the stock market heads south, as it does every few years, on average. If you see that your account has shrunk instead of grown, or if the market is in a lull and your account has not grown by much, it’s easy to get discouraged or distracted. You’ll need to stay the course.

Branch out into growth stocks

Clearly, you can amass great wealth by doing relatively little other than saving and investing regularly in the stock market, via index funds. If you would like to take on some more risk in exchange for the chance of greater rewards, you might put some of your money into carefully chosen individual stocks.

Growth stocks are an appealing possibility, as they’re growing, by definition, faster than average. They’re not without risks, though, so read up on growth stock investing and investing, in general, first. You’ll find a lot of good guidance at Fool.com and other spots, and the following books can be very helpful, too:

  • The Little Book of Common Sense Investing, by John Bogle
  • The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit, by Aswath Damodaran
  • The Little Book That Still Beats the Market, by Joel Greenblatt
  • The Motley Fool Investment Guide, by David Gardner and Tom Gardner

If you do decide to invest in individual stocks, consider heeding The Motley Fool’s investing philosophy. It recommends spreading your dollars across at least 25 stocks and aiming to hold them for at least five years. Remember that many of the market’s best performers – such as Apple, Netflixand Amazon.com – have increased the value of their shareholders’ investments by factors of 10, 20, or even more, and they’ve generally done so over decades.

There you have it – three solid ways that you can build significant wealth. Even just acting on the first two can lead you to a much more financially secure future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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