Month: September 2020

How To Turn $1000 Into $200,000

How To Turn $1000 Into $200,000

ericmilton

In 2017, I wrote an investment guide titled The Stock Market is For Everyone.

The mission of the guide – and of this blog – is to introduce, educate and inspire people who have never invested before to invest in the stock market. If you don’t know anything about the stock market, you may not know that it’s one of the best – if not the best – vehicles for creating wealth that exists.

What makes the stock market so powerful is the concept of compounding. Compounding is what happens when your money continuously gains interest over a period of time. As time passes by, your money will keep growing, but from a larger base.

For example, suppose you invest $1000 and earn 5% interest every year over the next five years.

At the end of year one, you would have $1050. At the end of year five, your money would grow to $1284.

The concept of compounding is so powerful because you can generate wealth with just a small amount of money.

To illustrate the point, I have created a list of stocks purchased in 2002 and 2003 and what the growth would have been today had you invested $1000:

Costco (NASDAQ: COST) would have turned $1000 into $10,000 today.

PayPal (NASDAQ: PYPL) would have turned $1000 into $12,000 today.

Activision Blizzard (NASDAQ: ATVI) would have turned $1000 into $24,600 today.

Amazon (NASDAQ: AMZN) would have turned $1000 into $190,000 today.

UnitedHealth (NYSE: UNH) would have turned $1000 into $24,000 today.

Hasbro (NASDAQ: HAS) would have turned $1000 into $7000 today.

As you can see from this small sample, the stock market can transform your money significantly over time. Imagine being the lucky person that was willing to take a shot on Amazon by investing $1000 in 2002. That person would have almost $200,000 today! For most families in the United States, a $200,000 investment windfall would significantly change their situation.

This is exactly why I am convinced that the average American owes it to themself and their loved ones to get into the stock market.

If you still need more convincing, here are some more examples of companies purchased from 2004 and 2005:

Booking Holdings (NASDAQ: BKNG) would have turned $1000 into $72,000 today.

Netflix (NASDAQ: NFLX) would have turned $1000 into $200,000 today.

NetEase (NASDAQ: NTES) would have turned $1000 into $ 41,000 today.

Vertex Pharmaceuticals (NASDAQ: VRTX) would have turned $1000 into $24,000 today.

Intercontinental Exchange (NYSE: ICE) would have turned $1000 into $7800 today.

Intuitive Surgical (NASDAQ: ISRG) would have turned $1000 into  $44,000 today.

When I purchase a stock, my intention is to hold on to that investment for decades, unless something drastically changes or the company commits fraud. Let’s go back 25 years now, so you can really see compounding at its finest:

Adobe (NASDAQ: ADBE) would have turned $1000 into $133,000 today.

Home Depot (NYSE: HD) would have turned $1000 into $39,000 today.

Microsoft (NASDAQ: MSFT) would have turned $1000 into $84,449 today.

Apple (NASDAQ: AAPL) would have turned $1000 into a whopping $381,690 today – and that does not include reinvesting the dividend!

Monster Beverage (NASDAQ: MNST) would have turned an investment of $1000 into $1,977,586 today. (The return is true, although finding this stock 25 years ago would have been like finding a needle in a haystack. I included it for fun more than anything else.)

I used $1000 in each of these examples to illustrate the point that investing in the stock market is absolutely not just for the wealthy or the elite. Many new investors  will not have the means to start with much more than that.

However…imagine if you had been able to invest $5000 in any one of these investments. You could be looking at $1,000,000 today in Netflix alone. Let me ask you a question: how different would your life be with an additional million dollars right now?

The returns generated by owning these stocks took place over a period of 15 to 25 years. Yes, I am talking about being a long-term, patient investor. The way I look at it is that time will pass whether you invest in the stock market or not. Why not have the time pass and build wealth for yourself in the process?

Today the stock market presents one of the greatest opportunities in history to build wealth. It takes zero effort for the average Joe to get into the market. You can download an app, open a brokerage account, and fund it with as little as $50 in as little as 15 minutes!

There are tons of resources you can use to get stock ideas now, as well. Many years ago, it was hard to get information on a company if you didn’t know the right person or have your own stockbroker. Today, you can find quality research on a number of different platforms that specialize in buying stocks.

Here are some of the best platforms you can use to open an investment account. Each has a five-star rating on NerdWallet.

TD Ameritrade

Charles Schwab

E*TRADE

Interactive Brokers

Fidelity

Merrill Lynch

First Trade

Ally Invest

There’s no time like the present to get started!

Let me share a true story with you on the power of compounding and starting as early as possible…

A former co-worker of mine worked for a bank over 20 years ago. While she worked there, she had a employer-matched investment account.

Ten years after she started working there, the bank decided to restructure. Her position was eliminated.

She was given three choices pertaining to her investment account: leaving it with her former employer, rolling it over, or cashing it out. She chose to cash it out because she didn’t know how long it would take her to find a job.

Fast forward 20 years…my coworker gets a series of letters in the mail telling her that she still has money in this investment account with her former employer. Initially, she ignored the letters because she was convinced it was a mistake.

Finally, she decided to contact her former employer and find out how much money she’d left in her old account. They told her that she withdrew all but $100, and that they would be sending her a check. When the check arrived in the mail, she was in no hurry to open it because $100 wasn’t all that exciting.

When she finally opened it, however, she was in for a big surprise: the $100 check she was expecting turned out to be $5100!

It turns out that the $100 she inadvertently left in her old retirement account continued to gain interest over the course of 20 years. All in all, that was a return of 5100% – in other words, 51 times her money.

When she did the numbers of how much she would have had she left all of her money in there instead of cashing out, she wanted to cry.

That is compound interest at its best.

There’s a big disparity among stock ownership in the United States. I am doing my part to change that. The stock market, in my opinion, is the best kept secret to wealth creation that exists, and more Americans need to know about it.

A recent Gallup poll illustrates the disparity among different demographics with regard to investing:

Stock Ownership Among Major U.S. Subgroups, 2020
Yes, own stock No, do not No opinion No. of interviews
% % %
U.S. adults 55 45 * 2,027
Men 58 42 * 1,052
Women 52 47 1 975
18-29 32 68 * 298
30-49 59 41 * 526
50-64 66 33 * 541
65+ 58 41 1 642
Non-Hispanic white 64 36 1 1,458
Non-Hispanic black 42 58 * 200
Hispanic 28 72 * 224
Postgraduate 85 14 * 401
College graduate only 77 23 * 462
Some college 54 45 1 678
No college 33 66 * 459
$100,000+ 84 15 * 501
$40,000-$99,999 65 35 * 766
<$40,000 22 77 * 540
Republicans 61 37 1 624
Independents 51 49 * 726
Democrats 56 44 * 623
GALLUP, MARCH-APRIL 2020

No matter who you are, what you do, or what your background is…you owe it to yourself and those who depend on you to get invested in the stock market.

 

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Five Reasons People Don’t Buy And Hold

Five Reasons People Don’t Buy And Hold

ericmilton

If you’re on social media like Twitter and Reddit, or watch financial media like CNBC, you get a heavy dose of short-term thinking every day.

It is the job of the media, as well as some posters on Twitter, to take a minute-by-minute temperature of the stock market. If the stock market is up, the media wants to tell you why. If the stock market is down, the media wants to tell you why.

If you’re a long term investor, and you’re planning to hold on to these stocks for the long term, none of that information matters to you.

Yet…it can be hard to be a buy and hold investor. Why is this?

Reason Number One: Holding Period Too Short

When people ask me if they should purchase a stock, the first question I ask them is: “How long are you planning on holding it?”

In my opinion, if you’re not planning on holding a stock for a minimum of three to five years, you should not purchase it.  A year or two may not be a long enough time period to benefit from owning a stock.

Take this year for example. Suppose you purchased stock in October of 2019 with the intent to hold on to it for six months.

You would have been in for a rude awakening, because six months later saw the stock market drop 25%  due to fears of the pandemic.

If you’d needed that money then, you’d likely have been down 40% or 50% on your initial investment.

A longer holding period gives your portfolio the opportunity to come back from such steep losses – and then some.

Reason Number Two: Lack Of Patience

Patience is a huge part of being able to successfully buy and hold your investment.

In this world of immediate gratification, we want to buy a stock on Monday and have it go up every day after that. That’s not how investing works!

The time it can take for an investment theme to materialize varies from a few months to a few years. For example, Netflix (NASDAQ: NFLX) went public in 2002. From 2006 to 2008, the stock was up a whopping 10%. It pretty much did nothing over three years.

I know someone personally who owned Netflix during this period, became impatient due to the lack of movement, and sold.

In 2007, Netflix introduced streaming video – which would eventually go  on to be one of the biggest disrupters of our time. It took a few years to gain traction…but once it did, it went on to become one of the greatest investments of all time.

Over the next eleven years, Netflix would go up 27,200% or 272 times your money. The only way to have captured that move was to be patient and hold for the long term.

Reason Number Three: Take Profits Too Soon

If you are a long-term investor, and thinking in terms of decades as opposed to quarters, you cannot be too anxious to take profits.

If you look at some of the greatest investments of all time, the only way to capture those life-changing returns is by holding.

For example, in 2016, I bought shares in a small genetic testing company called Invitae (NYSE: NVTA) at $7.36. The stock is currently trading at $40, a return of 444%. I have no idea what will happen in the future, but I’m not thinking about selling. If the company becomes as big a winner as I believe it can, it still has a long way to go.

Is there a chance the company will not meet or exceed my expectations? Of course.

On the flip side…I don’t have enough fingers and toes to count the stories I’ve heard of investors that took profits too soon and missed out.

Reason Number Four: Try To Time The Market

Unless you’re a genius or get very lucky, it is impossible to successfully time the stock market.

What is “timing the market”? Timing the market is when you try to anticipate when the market is going to fall so you can buy, or try to anticipate when the market will go up so you can sell.

If you’re on Twitter or other social media, you’ll see tons of posts by traders who are short-term in nature, as well as some people who call themselves long-term investors, about how they time the market.

The beautiful thing about being a true long-term investor is that you don’t have to time the market.

In 2016, I bought shares of Nvidia (NASDAQ: NVDA) at $69. The stock went to $299 over the next two years. It then proceeded to go from $299 to $128, and looked as though it could fall below $100. Eventually – a year later – it went back to around $248, but the market was looking very shaky. During this time, I actually thought about selling the stock around $248 to buy it more cheaply.

As it turned out, the stock never went much lower. NVDA is sitting above $500 today.

The best choice I made was to not do anything.

Don’t try to time the market. Just buy stocks when you have the money.

Reason Number Five: Fear

If you are going to be a long-term investor, you need to understand volatility.

Over the last 50 years, the stock market has gone up two out of every three years. However, we will have times when the stock market sells off – or maybe even crashes. As a result, your stocks will go down with the market. It is not inconceivable that the market and your stocks could fall 20%, 30% or even 50%. During the dotcom bubble, the NASDAQ fell 80%.

It is very important to not get scared because of downturns. Sell-offs are a natural part of the process.

You should actually welcome them. Downturns should be looked at as stocks going on sale.

When pandemic fears hit the market in March, my portfolio lost 40% of its value in the blink of an eye. Since then, my account has more than doubled, and is now near all-time highs. It’s not because I’m smart or some sort of investing genius. It’s just that I didn’t panic.

In Conclusion…

Being a long-term investor is not easy. It’s scary at times, and boring most other times. I liken it to watching paint dry the majority of the time. However, don’t let fear or boredom distract you from your goal of becoming a long-term investor.

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)