Kay Ng
·4 min read
Investing for your financial goals is much like the story of the tortoise and the hare. The tortoise is slow but determined to take step after step to ultimately achieve his goal. The hare is fast and snickers at the tortoise’s speed. The hare is so confident he’ll win the race that he takes a nap. Eventually, the tortoise wins.
Slow and steady wins the race.
Don’t underestimate your regular savings. Saving even just $10 a week amounts to $520 a year. If you’re able to save and invest, say, $500 a month, boy, will that make a huge impact on your financial life!
Invest $500 a month for 15 years and get to $250,000
Saving $500 per month equates to $6,000 a year and $90,000 in 15 years. Investing your savings in the stock market will grow that little fortune into big fortune.
Normally, investors can get long-term market returns of about 7% from the TSX index. However, because the market crashed and is still relatively low, investments today can deliver even higher returns!
Here are some stocks that you should highly consider. It’s well within reason to expect the stocks of Alimentation Couche-Tard (TSX:ATD.B) and Open Text (TSX:OTEX)(NASDAQ:OTEX) to deliver annualized total returns of 10-15% (if not greater) over the next five years.
Both companies use an M&A strategy as a key pillar for growth and have done so with tremendous success. They generate substantial free cash flow. Therefore, they can make fitting acquisitions as they see fit.
Since 2012, well after the last economic downturn, so there’s no bias, Couche-Tard stock has delivered returns of more than 27% per year, while it was 19% for Open Text. Both returns greatly beat the North American market returns.
Assuming you invest $6,000 each year in the stocks and get returns of 12% per year, you’d end up with $250,519 in 15 years! That’d be $160,519 on top of the $90,000 you contributed over the years.
Invest $500 a month in high-yield dividend stocks
Couche-Tard and Open Text pay dividends, but their yields are tiny at 0.7% and 1.8%, respectively. Investors can also aim for 12% returns from higher-yielding dividend stocks thanks to the market crash.
For instance, BNS stock offers a 6.8% yield at writing. The big bank’s payout ratio is about 52%, and its earnings are very stable. So, it’s highly likely that it’ll maintain or increase its dividend through this economic downturn.
Moreover, at about $53 per share at writing, BNS stock trades at a substantial discount of roughly 35% from where it can normally trade. Assuming long-term growth of about 5%, the bank stock can actually deliver returns of 13-15% over the next five years.
The Foolish takeaway
Investors can complement their high-growth stocks with high-yield stocks. The market crash that we’re in provides long-term investment opportunities in both types of investments.
By saving and investing regularly in proven growth stocks like Couche-Tard and Open Text, and safe dividend stocks like BNS stock, investors are setting themselves up for vast wealth down the road.
By investing $500 a month (i.e., $6,000) a year and getting 12% annualized returns, you’ll arrive at $250,519 in 15 years. In the current bear market, investors should push to put down more than $500 a month in their retirement fund, because there’s a greater chance of even higher returns.
Remember to invest in quality businesses!
The post Invest $500 a Month for 15 Years and Get $250,000 appeared first on The Motley Fool Canada.
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Fool contributor Kay Ng owns shares of ALIMENTATION COUCHE-TARD INC, Open Text, and The Bank of Nova Scotia. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC, BANK OF NOVA SCOTIA, Open Text, and OPEN TEXT CORP.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020
This article delves into the concept of long-term investing using the analogy of the tortoise and the hare, emphasizing the significance of consistent savings and investments to achieve financial goals. Let's break down the key elements and concepts covered:
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Long-Term Investing: The article advocates for a slow and steady approach to investing, highlighting the impact of consistent contributions over time. It emphasizes the power of compounding and how regular investments, even in modest amounts, can accumulate into substantial savings.
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Savings and Investments: It stresses the importance of regular savings, citing an example of saving $500 a month, which over 15 years can accumulate to $250,000 through investments. This emphasizes the role of disciplined saving habits in wealth creation.
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Stock Market Returns: It mentions the potential returns from the TSX index, estimating around 7% for long-term market returns. It also discusses the impact of market crashes on investment opportunities, suggesting higher potential returns due to the market's low point.
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Stock Recommendations: Specific stocks like Alimentation Couche-Tard (TSX:ATD.B), Open Text (TSX:OTEX)(NASDAQ:OTEX), and The Bank of Nova Scotia (TSX:BNS) are recommended for potential growth. These recommendations are based on their historical performance, free cash flow, dividend yields, and strategic growth plans via mergers and acquisitions.
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Dividend Stocks: The article talks about high-yield dividend stocks, such as BNS, with a focus on their stability, payout ratios, and potential returns amidst market downturns.
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Expected Returns: It forecasts potential returns of 10-15% for Alimentation Couche-Tard and Open Text over the next five years, while suggesting BNS could deliver returns of 13-15% due to its discounted price and dividend stability.
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Strategy and Advice: It advises investors to diversify their portfolios by including both high-growth and high-yield dividend stocks. It also stresses the importance of quality businesses and the opportunities presented during bear markets for long-term investments.
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Financial Planning: The article concludes by emphasizing the need for quality investments, encouraging readers to invest consistently and increase their contributions, especially during market downturns, for potentially higher returns.
This comprehensive breakdown provides a holistic view of the article's main points, which revolve around the principles of consistent savings, strategic investment choices, diversification, and the potential impact of market conditions on long-term wealth accumulation.
