If you’re willing to buy and hold, you don’t need much to build a small fortune. That’s because compound interest will do most of the work. Let’s look at a great example.
If you invest $1,000 and earn 10% annual returns, you’ll have $2,600 after a decade. But after two decades, you’ll have $6,700. And after three decades, more than $17,000.
The results are clear. The longer you keep your money invested, the faster it grow. In the first 10 years, you made a profit of $1,600. In the final 10 years, your profit was $10,300, all without investing another dime.
Accelerating growth is a major reason why stock market gurus like Warren Buffett extoll the virtues of long-term investing. Buy-and-hold investors are able to harness the magic of compound interest, a phenomenon that Albert Einstein reportedly described as the most powerful force on earth.
Want to capitalize on the advantages of buy-and-hold investing? Even if you have just $1,000 to invest, you can build long-term wealth with the following stock.
This is the stock
Brookfield Infrastructure (TSX:BIP.UN)(NYSE:BIP) stock is the perfect buy-and-hold stock. The company is targeting one of the greatest — and longest — opportunities in history: population growth.
But how exactly does a company benefit from population growth? By owning assets that directly benefit from the world getting bigger.
Brookfield owns a variety of infrastructure assets, from railroads and highways to wind farms and cellphone towers. A growing population almost always results in higher demand for these basic services.
In recent months, Brookfield has deployed more than $1.3 billion in capital. These new projects are located throughout the world, diversifying the company’s bets across a wide variety of markets.
It spent $600 million to acquire telecom towers in India and a data distribution facility in New Zealand, another $500 million to purchase a railroad in North America, and $150 million on a long-range natural gas pipeline.
Buying and holding is key
After going public more than a decade ago, Brookfield has shown that investing for the long term is the best way to build wealth. The results speak for themselves.
Since 2008, Brookfield’s stock has increased by more than 20% per year. When including dividends, the total annual return is closer to 25% per year. Buy and hold investors take note: this is a terrific stock to create financial independence.
Let’s re-run some of our numbers from before. Instead of assuming a 10% annual rate of return, let’s use Brookfield’s real-world result of 20%.
Earning 20% per year, $1,000 would become $6,200 after a decade, $38,000 after two decades, and $237,000 after three decades. That’s nearly a quarter-million dollars, built from a starting amount of only $1,000! This is the power of compound interest, which is only attainable through buy and hold investing.
How long can Brookfield continue to grow at these rates? After a decade of breakneck growth rates, the firm is still valued at just $20 billion. The global opportunity, meanwhile, is easily in the trillions.
With a proven strategy and long runway for growth, Brookfield Infrastructure is the ideal investment for buy-and-hold investors.
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The Motley Fool recommends Brookfield Infrastructure Partners. Fool contributor Ryan Vanzo has no position in any stocks mentioned.