Wednesday, May 28, 1997
[today we revisit a classic fribble from December 1995.]
Investing For The
Really Long Haul
by
Cormend
The past few months have been revolutionary for me as an investor -- I've learned how to Foolishly invest in stocks and, not coincidentally, to divest in my (underperforming) mutual funds. Even my eight-year-old son has enjoyed getting in on the act; he's decided to take the money out of his kiddie bank account (amassed from his $1.50 weekly allowance) and buy some stock from his old man. He bought one share of Intel (inside his computer) and one-half share of General Electric (all around his kitchen), for an investment of about $100. Occasionally he asks how his stocks are doing, and has learned that it definitely pays to buy low and sell high.
Recently I was toying around with the financial planning function in Quicken, and came up with some interesting numbers. Given his investment time-frame, my son's $100 investment today would be worth $438,000 in 60 years, given a modest 15% return. With a more Foolish 20% (Beating the Dow) return, his investment would be worth $5,634,000. And, dare I say, with a stupefying 25% (Investing for Growth?) return, we're talking $65,253,000 in earnings from a $100 investment! These returns are hypothetical, of course -- they don't account for brokerage commissions, taxes, or the need to spread the investment among, say, four different BTD stocks. But out of such hypotheses, great plans can be born.
Let's take this line of thinking one step further. If my son were to add a "measly" $100 per year, each year for 60 years, Quicken calculates his nest egg would grow to $3,360,000, $33,808,000 and $326,000,000 for 15%, 20%, and 25% returns respectively. (The last figure had to be estimated, since even Quicken cannot fathom such large numbers). The Quicken program nicely spells out the totals year by year, an excellent education in the magic of compounding.
Needless to say, these eye-popping numbers really got my son's attention. Ever since, he saves all the money he can, currently has his sights on one share of Hewlett Packard, and dreams of his life as a multi-millionaire.
[Editor's note: Cormend is a cardiologist from Baltimore who is hoping to retire early on his son Michael's investments.]
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