How many of you wish that your grandpa bought $1,000 worth of General Electric stock during the Great Depression that would be generating $400,000+ in dividends today, allowing you to buy homes outright, fund children’s education by writing checks, and most importantly, inherit the “life infrastructure” that would allow you to dare to be great and pursue your dreams without making decisions based on scraping by and getting the bills paid.
Or maybe you wish your grandpa hid a couple hundred shares of AT&T stock certificates in the sock drawer sixty years ago so that you would be collecting over half a million dollars in annual dividends that you could use to jumpstart your own art museum that would allow you to have almost $150,000 coming your way every ninety days so that you could spend your life purchasing artwork around the world and sharing the beauty with others. That entire lifestyle could have been created *if* your grandmother or grandfather had the foresight to set aside some money that they would not interfere with, opting instead to let compounding work its magical touch.
Once you give a cash-generating asset over 20+ years to run, you will begin to see how even folks earnings a middle-class salary can get on their way to becoming Rockefeller lites.
Consider these scenarios:
If you put $10,000 into Procter & Gamble in the summer of 1970, you’d have $1,750,000 today.
If you put $10,000 into Johnson & Johnson in the summer of 1970, you’d have $2,019,000 today.
If you put $10,000 into Coca-Cola in the summer of 1970, you’d have $1,840,000 today.
If you put $10,000 into Exxon Mobil in the summer of 1970, you’d have $3,980,000 today.
If you put $10,000 into Chevron in the summer of 1970, you’d have $2,150,000 today.
(As an aside: in case you wonder why Exxon and Chevron did so well relative to the other stocks on the list, there is one main differential: the reinvestment of dividends. For much of oil’s industry, it paid a high dividend based on its trading price. You know how BP and Shell have dividends around 5% most of the time? Well, that’s how Exxon and Chevron used to be most of the time, before they began executing buyback programs in addition to dividends. Furthermore, oil stocks rarely get overvalued. Most of the time, you are reinvesting into them at a fair market price or a slight overvaluation. Over the course of decades, this effect can become substantial as you see above).
The question then becomes: If you wish that your grandparents did something like this for you, then why don’t you be the one you wish your grandparent could have been? Imagine if you took $12,000, set up a trust with the instruction that $2,000 gets put into Colgate, $2,000 gets put into Coca-Cola, $2,000 gets put into Nestle, $2,000 gets put into Exxon, $2,000 gets put into Procter & Gamble, and $2,000 gets put into Johnson & Johnson. That would be a hell of a present for your grandchild in 40-60 years.
Almost everyone you will encounter in your life does not think like this, especially if they are in their 20s and 30s. But if you dare to be great, instead of doing what everyone else is doing, these are the kinds of decisions you can make that will change the entire trajectory and realm of possibilities for your children and their children.
Some people are scared of long-term investing because they think they the stocks they buy might fail. But remember this: even if you bought $10,000 worth of Coca-Cola stock in 1970 and made four $10,000 investments that went entirely bankrupt, you still would have turned $50,000 into $1.84 million. You only need one successful long-term investment over the decades to make your financial life enormously successful. In the words of my financial hero Charlie Munger, “You only have to get rich once.” Nowhere in the world has it been as easy to lay the foundation for long-term wealth like it is in the United States of America in July 2013. Why not do something, no matter how small, that gives you a fighting chance to participate in the wondrous effects of compounding 8-12% growth over the decades?
Originally posted 2013-07-31 06:45:34.