MAKING MONEY - THE POWER OF COMPOUNDING

MAKING MONEY:  The most popular piece I've published in 40 years of writing these Letters was entitled, "Rich Man, Poor Man." I have had dozens of requests to run this piece again or for permission to reprint it for various business organizations. Making money entails a lot more than predicting which way the stock or bond markets are heading or trying to figure which stock or fund will double over the next few years. For the great majority of investors, making money requires a plan, self-discipline and desire. I say, "for the great majority of people" because if you're a Steven Spielberg or a Bill Gates you don't have to know about the Dow or the markets or about yields or price/earnings ratios. You're a phenomenon in your own field, and you're going to make big money as a by-product of your talent and ability. But this kind of genius is rare. For the average investor, you and me, we're not geniuses so we have to have a financial plan. In view of this, I offer below a few items that we must be aware of if we are serious about making money. Rule 1: Compounding: One of the most important lessons for living in the modern world is that to survive you've got to have money. But to live (survive) happily, you must have love, health (mental and physical), freedom, intellectual stimulation -- and money. When I taught my kids about money, the first thing I taught them was the use of the "money bible." What's the money bible? Simple, it's a volume of the compounding interest tables. Compounding is the royal road to riches. Compounding is the safe road, the sure road, and fortunately, anybody can do it. To compound successfully you need the following:  perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. And you need a knowledge of the mathematics tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road. And, of course, you need time, time to allow the power of compounding to work for you. Remember, compounding only works through time. But there are two catches in the compounding process. The first is obvious -- compounding may involve sacrifice (you can't spend it and still save it). Second, compounding  is boring -- b-o-r-i-n-g. Or I should say it's boring until (after seven or eight years) the money starts to pour in. Then, believe me, compounding becomes very interesting. In fact, it becomes downright fascinating! In order to emphasize the power of compounding, I am including this extraordinary study, courtesy of Market Logic, of Ft. Lauderdale, FL 33306. In this study we assume that investor (B) opens an IRA at age 19. For seven consecutive periods he puts $2,000 in his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions -- he's finished.

9 Ways to Get Rich Quicker

Maybe you’re willing to take some calculated risks in pursuit of the freedom that money (and lots of it) can give you to make choices that can bring satisfaction, whether that means buying your dream home, giving generously to charity or escaping the 9-to-5 grind. In that spirit, we focus on nine faster roads to riches, with varying levels of risk. Essential qualities for success: passion, persistence and patience.

Start a New Business

Risk level: High
What do success stories like Henry Ford, Steve Jobs and Mark Zuckerberg have in common? They all made their mark (and their millions) by coming up with a better idea and running with it. Starting a business is a proven path to wealth, and the best way to get there is to start small and scale up -- which usually means being bought out by a larger company, selling franchises or licensing your product.
An ambitious goal is critical if you want to expand your business.

Create a Product

Risk level: Medium
Creating a product and licensing it or selling it through retailers is another route to making money from your good idea.
One of the biggest mistakes that aspiring inventors make is to create a product before they’ve determined whether there’s a demand for it. Talk to potential customers in person before you develop a products.

Invest Aggressively

Risk level: High
With this approach, you invest in a small number of stocks that you hope can double, triple or even quadruple in relatively short order.
Call this a shoot-the-lights-out strategy. Nobody knows for certain which stocks will surge and which will sink. But if you are hoping to achieve big gains, you’ll need to look beyond large, steady-Eddie types of companies. Small companies that are poised for rapid expansion and firms that serve emerging markets, which are growing more rapidly than developed nations, make for fertile hunting ground for potential winners.
If you go this route, you’ll need to monitor these companies carefully to determine whether to hold them or replace them with better opportunities.