$10,000 compounded at 9% per year grows to the following amounts over the time frames below:
- $23,673 after 10 years
- $56,044 after 20 years
- $132,677 after 30 years
- $743,575 after 50 years
- $55.2 million 100 years
- $4.1 billion after 150 years
Q3 hedge fund letters, conference, scoops etc
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Keep in mind, this is without saving any additional money. And 9% returns aren’t exactly mind-boggling; the U.S. stock market has generated around those returns over the last 100+ years.
A family that saves $10,000 will be a multi-billionaire family in 7 to 8 generations (each generation ~20 years). But few people have a long-term mindset that reaches beyond their own lifetime.
The first key to intergenerational wealth compounding takes the least effort, but may be the hardest to learn.
Key #1: Have A Long-Term Mindset
When you focus on long-term returns, you set yourself apart from all the MBAs and analysts scouring the market and crunching numbers about what stocks will perform the best in the next 3 months to 1 year.
You can’t win at that game. But you don’t have to play that game either.
“The single greatest edge an investor can have is a long-term orientation”
– Seth Klarman
Having a long-term perspective means investing in:
- Great businesses
- With strong and durable competitive advantages
- And attractive total return potential
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
– Warren Buffet
When one develops a long-term mindset, it makes sense to invest your money where it’s likely to grow the fastest over long periods of time, instead of looking at what asst class might be the ‘hottest’ next month or next year.
And that brings us to the next key to intergenerational wealth compounding.
Key #2: Invest Primarily In Businesses (stocks for the long run)
Investing in equities/stocks can be abstract. many people invest in index funds that hold several hundred different securities. This makes investing in the stock market seem almost like a casino (admittedly where the odds are actually in your favor).
I have nothing against index investing. It’s a great way for investors to get broad market exposure.
And market exposure is a great thing. The stock market has massively outperformed gold and other commodities, short-term debt, long-term debt, and cash over the long run.
But whether you are index investing or investing in individual securities (our preferred method at Sure Dividend), it’s important to understand what you are really investing in.
Investing in the stock market means you are investing in real businesses. Every stock is a tiny fractional ownership share of a real business.
I believe equities have outperformed other asset classes by wide margins over long periods of time because businesses are around primarily to make money for their owners. And the people who run businesses work hard to make that happen.
As society progresses and businesses get more efficient, more money accrues to investors.
Income paying stocks pay out a portion – sometimes virtually all – of their earnings or cash flows to shareholders; the owners of the business.
And that’s where the next key to intergenerational wealth compounding comes into play.
Key #3: Prevent Panic Selling With Income Investing
While building wealth over very long periods of time is nice, you need to fund your expenses today (or be prepared when you do retire) with income from your investments.
If your portfolio income covers your expenses through dividends/distributions, then you have reached a special investing state; you are no longer forced to sell. You get to pick when you sell.
If the stock market collapses 50% – and your high quality incomes stocks keep paying steady or rising income – your quality of life is unaffected.
In fact, you can take advantage of lower prices by rotating your overpriced past buys (if any remain overpriced) into deep value securities, or reinvest any excess dividends into undervalued securities. This makes market declines almost enjoyable as they become sales on great businesses instead of permanent wealth destroying events.
I believe that panic selling during market downturns is likely the single biggest mistake most investors make.
The final key is another way to improve returns by reducing money coming out of your investing account.
Key #4: Minimize Investing Fees
The typical fee based investment advisor charges 1% in assets under management annually, and they are much fairer than the typical commission based financial advisor.
In addition, many active equity mutual funds still charge 1% or more annually. It’s not uncommon for an investor to be paying 2% annually in total investment expenses.
Many analysts predict stock market returns of less than 5% annually over the next several years due to high valuations. Paying two percentage points out of five total is the same as giving up 40% of your investment growth – quite a high price to pay.
Over time, investing fees at up. We believe your investment money should stay in your account to compound, where it belongs.
Another aspect to minimizing investment fees is trading infrequently. Less trading means capital gains taxes are triggered less often (in taxable accounts). Instead of paying capital gains taxes to your friend Uncle Sam, it stays in your investment and continues to compound. This is likely why Warren Buffett is known for such long holding periods.
Additionally, infrequent trading reduces brokerage commission costs and trade slippage expenses. While these costs have come down a great deal, every little bit of extra money in your account helps over the long run.
Minimizing investing fees certainly isn’t as exciting as finding quality stocks to invest in… But it is one of the surest ways to increase your returns over the long run.
Implementing Intergenerational Investing
You can’t save for future generations unless your own retirement is taken care of first.
And that’s why we created The Sure Retirement Newsletter. The Sure Retirement Newsletter provides actionable buy and sell decisions and new Top 10 lists of 4%+ yielding securities each month so you stay up to date with high income investing in quality securities.
At $79/year, it is priced to absolutely minimize investing expenses (what does an active mutual fund at 1% charge annually? Do the math and be prepared to shudder).
But for the end of the year, we wanted to do even better.
That’s why from now through the morning after 12/31/18 (no exceptions), you can get The Sure Retirement Newsletter for just $49/year – savings of $30 annually. Your price will never increase after joining.
And, we have a risk-free 7 day trial. You are literally not billed for 7 days. Opt out during that time frame by emailing support@suredividend.com, and you won’t pay a penny (but most people stay on past their free trials because our newsletters deliver serious value).
Note: This offer expires the morning after 12/31/18, no exceptions. Enter coupon code EoY30 if it doesn’t apply automatically.
The same offer is also available on our Sure Dividend Newsletter. While Sure Retirement focuses exclusively on 4%+ yielding REITs, stocks, and MLPs, The Sure Dividend Newsletter focuses on dividend growth stocks.
These are stocks that have, on average, lower yields than Sure Retirement recommendations, but have (again, on average) better growth prospects and dividend safety.
Email suppport@suredividend.com if you have any questions. We look forward to hearing from you!
Thanks,
Ben Reynolds
ValueWalk readers can click here to instantly access an exclusive $100 discount on Sure Dividend’s premium online course Invest Like The Best, which contains a case-study-based investigation of how 6 of the world’s best investors beat the market over time.
