Increasing the value of an investment by 10 times or more is a common goal. Often referred to as a “tenbagger,” such a score can set you well on your way to a secure retirement. A $10,000 investment that becomes a tenbagger is worth $100,000 at the end. Repeat the feat once more and you’re up to $1 million. The only problem is that hitting a tenbagger can take a long time. At an average return of 10% a year (what the TSX has averaged since 1970), it would take you 24 years. While not exactly an eternity, but certainly…
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Increasing the value of an investment by 10 times or more is a common goal. Often referred to as a “tenbagger,” such a score can set you well on your way to a secure retirement. A $10,000 investment that becomes a tenbagger is worth $100,000 at the end. Repeat the feat once more and you’re up to $1 million.
The only problem is that hitting a tenbagger can take a long time. At an average return of 10% a year (what the TSX has averaged since 1970), it would take you 24 years. While not exactly an eternity, but certainly a longer wait than most investors would like.
Fortunately, there are ways to accelerate your path to a tenbagger–and the financial security that comes with it. As you’re about to see, you only need to beat the market by a very slight margin for one of your investments to become a tenbagger in 20 years or less.
At that rate, you could have an investment become a tenbagger two times over in 40 years! In just a second I’ll mention some stocks that have the potential to do that. First, let’s look at what kind of annualized return you’d need to hit a tenbagger in 20 years.
What annualized average return you’d need
A tenbagger works out to a 1000% total return regardless of how long it takes to get there. To reach that return in 20 years, you’d need an annualized return of 12.2%. If that doesn’t sound like much, you’re right: thanks to the miracle of compounding, you can reach a fairly large total return even if your annual return isn’t that high.
That’s not even beating the market by that much
To put 12.2% a year into perspective, it helps to remember that the TSX’s average annual return since 1970 has been 10% (including dividends). So you only need to beat the market by 2.2% a year to get to a 20-year tenbagger.
Consider a stock like Toronto-Dominion Bank (TSX:TD)(NYSE:TD). Over the past five years, it has outperformed the TSX by about 30%, and that’s not even including dividends. With an annualized return of 6.33% from capital gains and an average yield of 4%, you’ve got a return in excess of 10.3% a year right there (and that grows slightly higher if you reinvest the dividends). So even a milquetoast bank stock can take you within striking distance of a 20-year tenbagger.
Enbridge (TSX:ENB)(NYSE:ENB) is another slow and steady tenbagger stock. Over the past 20 years, this stock is up roughly 450%, which takes you nearly halfway there, at an annualized growth rate of 8.6%. The real genius behind this stock, though, is its ultra-high dividend yield, currently around 6%, which brings the total return up to 14% (assuming future performance matches past performance). At that rate, it would take only 17 years to 10x your investment!
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Fool contributor Andrew Button owns shares of TORONTO-DOMINION BANK. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.