Make Millions From Thousands

Make Millions From Thousands
By Selena Maranjian September 21, 2007
3 Recommendations

I could write this article the usual way -- by showing you how you can turn your thousands into millions through investing in solid, growing companies familiar to most of us. Caterpillar (NYSE: CAT), for example, has grown by a compound average of 13% annually over the past 10 years, and Apple (Nasdaq: AAPL) has averaged 38% over that same period. Not too shabby.
Will such returns turn your thousands into millions? Yes, eventually. An investment of merely $10,000 would turn into $1 million in 25 years if it grew at an annual average of 20%, but 20% is a fairly steep average to count on for your stock investments -- a number to which only a select few master investors can aspire. It's safer to have more conservative expectations -- perhaps closer to 10%, the stock market's historical average annual return over most of the past century.

A fine balance So what should you do if you don't want to wait 50 or more years to make millions? Here's one option: Take a few chances.
With most of your money, you shouldn't take crazy risks. You might want to sock much of it away in a broad-market index fund, such as the Vanguard 500 Index (VFINX). That low-cost fund should earn you close to the market's historical return over long periods of time. (One simple way to invest in the S&P 500 is through S&P 500 Depositary Receipts, also known as SPDRs.) Either of these options will instantly invest your money in 500 major American companies, including stalwarts such as Altria and Merck.

Meanwhile, take a few chances and supplement your index with some growth stock picks. That's what I'm doing in my own investment account. I don't want all my money in an index fund, because I'd like my portfolio to grow faster than average, so a chunk of my nest egg sits in a variety of individual stocks.

This strategy should help mute volatility, but it can also allow you to do well with some carefully chosen stocks -- as it did for me, when I turned $3,000 into $210,000.
Aiming for the stars That kind of return, which came from a classic Rule Breaking company, is too tempting for me to ignore. That's why I'm still on the lookout for young, dynamic companies that are breaking the rules as they grow and prosper. That said, I'll only invest a modest portion of my portfolio in them.

The kinds of companies I'm talking about are tomorrow's Google (Nasdaq: GOOG), Amazon.com (Nasdaq: AMZN), and Wal-Mart (NYSE: WMT). Think about how different the world was before them. We would have laughed at the thought of being able to look up almost anything online. We couldn't imagine buying books (and cookware and lawnmowers) on our computers. We wouldn't have been able to find low-cost discount stores in small towns across America. These are all companies that broke their industries' molds and introduced newer, better systems.

Even Ford was a rule-breaking company once, daring to make a luxury item available to the masses at an affordable price. Just imagine a world without cars -- it's not easy.
These companies broke their industries' molds and introduced newer, better systems.
Find some rockets The strategy of seeking out and investing in Rule Breakers certainly requires patience and entails risk, but just one growth rocket has the potential to supercharge an otherwise stodgy index strategy.

If you're interested in some rockets to add to your own portfolio, consider trying our Motley Fool Rule Breakers ultimate growth service free for 30 days. Headed by Fool co-founder David Gardner, who turned me on to an amazing 20-bagger a decade ago, Rule Breakers pays special attention to cutting-edge fields such as biotech, alternative energy, and nanotechnology. Check it out to learn more.

This article was originally published on July 7, 2006. It has been updated.
Longtime Fool contributor Selena Maranjian owns shares of Wal-Mart and an S&P 500 index fund. Wal-Mart is a Motley Fool Inside Value recommendation. Amazon.com is a Motley Fool Stock Advisor recommendation. The Fool is investors writing for investors.