The Dow Approach
The Dow Approach
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FOOL GLOBAL WIRE LEXINGTON, KY. (January 31) -- Too often we hear about investing in the stock market as if it's only something for people with six-figure salaries and beach houses. But those people we see in the glitzy ads didn't start out there, unless they inherited their money or won the lottery. They got there gradually. Wealth grows slowly, but it does grow, even when starting with very modest means. The best way to illustrate this is by looking at how easy it is to accumulate wealth if one takes the time and starts young. Let's look at a simple scenario. Joe College is 20 years old. He's been working his way through school at various jobs, so he has some earned income, but he's never done anything but stick a few dollars into a savings account. But he's graduating this year and already has a job lined up. In fact, it's such a sweetheart deal that the company is even paying him a stipend his last semester in school. The long and short of it is, he can invest a little bit now because his next box of macaroni and cheese is paid for. Starting at age 20, then, Joe puts $2,000 into a self-directed IRA using the Dow Approach we call Unemotional Value. For the last 26 years, this strategy has compounded at 23.4% a year, so for simplicity's sake, we'll assume that as a constant growth rate for Joe. Each year like clockwork, Joe plunks in another $2,000 and recycles his money into the new Dow stocks. His plan, retire at age 59 ½ and start living large. Will he get there? Remember, all Joe's socking away is $166.66 a month. Believe it or not, when Joe can start pulling money back out of his retirement account, he'd be sitting on a retirement fund of $38.4 million. And whatever he doesn't pull out to pay for his needs and taxes continues to grow tax-deferred for several more years. (I know, I know. There's always someone who wants to take shots at the approach's track record. "It can't possibly keep doing that well, can it?" Even if it only averages 18%, over five percentage points less per year, Joe's account will still grow to more than $8.3 million.) All it takes is time, a solid strategy, and discipline. You don't even have to be Joe College, in fact. Anyone who has earned income and can save a portion of it can get started like this and let time do its magic. What's keeping you? |
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