美国人是如何投资理财的？ - The World's Greatest Get-Rich Formula 姑苏小侠 - 2007-10-20, 12:33 发表主题: The World's Greatest Get-Rich Formula
The World's Greatest Get-Rich Formula
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You should be highly skeptical of any and all get-rich schemes ... except for the super-simple formula I'm going to show you below. Because this one really works.
It works so well that it's been used by the world's billionaires -- from moguls of yesteryear such as Rockefeller and Ford to today's tycoons Carlos Slim and Warren Buffett.
But enough already. Let's get to the formula.
The formula
It is, simply:
FV = PV * (1+r) ^ n
Where:
FV = future value
PV = present value
r = rate of return
n = time (or number of years)
Compounding 101
Now, some astute finance brains will know that equation not as some mystical secret but as the "future value of money" (FVM) equation taught in college.
The FVM formula simply states that your future wealth (FV) is a function of three variables: the amount of money invested today (PV), the rate of return generated (r), and the length of time in which that money is put to work (n). So maximizing future riches requires three steps.
Step 1: Increase PV
It takes money to make money. But by actively and consistently slivering off a portion of your earnings every month to save and invest, you'll have more and more of that money working for you.
All things equal, the greater amount you invest today (PV), the greater wealth you'll build for tomorrow (FV).
Step 2: Increase r
Next, you'll need a way to grow that capital. Historically, the stock market has been the most effective wealth-building vehicle of all. Plowing your money into a low-cost index fund wouldn't be a bad idea.
But if you really want to maximize r, you'll need to allocate a portion of your portfolio to the best segment of the market over the past 50 years: small-cap value stocks. The reason is simple. Unlike behemoths such as $115 billion Merck (NYSE: MRK) and $190 billion Johnson & Johnson (NYSE: JNJ) -- whose spectacular growth days are behind them -- reasonably priced small caps have tons of room to rocket. Take a look at Fama and French data, which tracked stocks from 1956 to 2005:
Value
Growth
Large caps
13.3%
9.7%
Small caps
17.3%
8.7%
Total stock market
10.5%
Not adjusted for inflation.
All things equal, the greater your rate of return (r), the greater wealth you'll build for tomorrow (FV).
Step 3: Increase n
The last ingredient in our super-simple wealth building recipe: maximum time in the market.
Look back at the equation. You'll see that n is an exponential function -- meaning that for every year you're not invested, you give up the awesome (almost magical) benefits of compounding.
All things equal, the longer you're invested (n), the greater wealth you'll build for tomorrow (FV).
Plug and chug
To get a feel for the three-step process in action, let's go back in time to see what kind of wealth would have been generated had someone:
Invested $40,000 in the stock market
Started 10 years ago
Divided the money among five stocks having: market caps less than $2 billion (to screen for small size), sales growth greater than 15% (to screen for above-average opportunities), and price-to-sales ratios of less than 1.5 (to screen for a good price).
Here's what it would look like:
Company
Amount Invested
10 Years Ago
AverageCompounded
Return Over Past
10 Years
Total Value
of Investment Today
Best Buy (NYSE: BBY)
$8,000
33.9%
$148,075
FTI Consulting (NYSE: FCN)
$8,000
27.7%
$91,892
Expeditors International of Washington (Nasdaq: EXPD)
$8,000
24.2%
$69,682
Florida Rock Industries (NYSE: FRK)
$8,000
23.7%
$66,947
Fossil (Nasdaq: FOSL)
$8,000
25.9%
$80,332
Total amount invested (PV)
Avg. annual return
of portfolio (r)
Total value of portfolio today (FV)
$40,000
27.6%
$456,929
By having bought into five high-quality, reasonably priced companies while they were still babies, that $40,000 stake would be worth nearly $500,000 today.
Of course, you can always fiddle with the numbers to generate different levels of FV, but our objective should remain the same:
Maximize PV by sticking to an investment plan.
Maximize r by devoting a chunk of your portfolio to superior small caps at attractive prices.
Maximize n by investing as soon as possible and for as long as possible.
The final Foolish variable
So don't waste another "n." Start plugging whopping returns into your own real-life wealth equation today.hgong2004 - 2007-11-29, 16:54 发表主题:
aweson. I got it. tks ashleyco - 2013-12-12, 16:27 发表主题:
I got it.