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The Daily Dow LEXINGTON, Ky. (June 21): I'm the first to admit I know precious little about options. From what I've read though, options investments provide a real opportunity for a killing. Unfortunately, the investor, I hear, is usually the one whose head is mounted on the wall when the hunt ends. Whether that's true or not I'll leave for others to decide. But since the "triple-witching" options expiration is the conventional wisdom being used to explain today's solid day for the Dow, I thought I'd mention it.
Does it matter to Dow investors? Of course not. This approach is best used with a horizon looking out years, even decades. Investors fretting about today's options expiration have a shorter time horizon than a good round of golf. For us Fools, it's just not worth worrying about.
If you're patient and have time, let's look at what the compounding clown does with this too-simple approach. Assuming the 22% return the Foolish Four has averaged over the last 25 years, what would a $10,000 investment be worth in 5 years? (excluding taxes and commissions, topics we've discussed frequently here so I feel safe in setting aside those issues for today). In 5 years, you'd have $27,000.
In 10 years? $73,000 In 15 years? $197,000
How long will it take you to get to the magic million-dollar level? 23 years! That sounds like forever, perhaps, but this is assuming you never add another penny to your savings (a very un-Foolish thing) and that you simply re-create the Foolish Four returns without adding a potentially more lucrative growth component.
If you were a professional money manager and a client of your parked $10,000 with your firm and went on a world tour for 23 years and returned to find a $1,000,000 portfolio, you'd have more money thrown at you than you can imagine ever managing.
Don't get caught up in the day-to-day bluster, Fools. Keep your eye focused on the long term and invest Foolishly. It's a winning game plan. Have a Foolish weekend!
Transmitted: 6/21/96
Today's Dow Numbers THE FOOLISH FOUR MODEL (6/21/96) |
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