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.
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:
|Yes, own stock||No, do not||No opinion||No. of interviews|
|College graduate only||77||23||*||462|
|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.
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.)