Summary
- By utilizing the power of compounding, your portfolio amplifies the growth of your working money and maximizes the earning potential of your investments.
- Today, I want to provide readers with a textbook example of a buy-and-hold REIT that is a classic power of compounding alternative.
- “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” - John D. Rockefeller.
- I consider W.P. Carey to be a classic buy-and-hold stock because the investor can take advantage of the power of compounding and is not really concerned with short-term volatility.
- This idea was discussed in more depth with members of my private investing community, Rhino Real Estate Advisors. Get started today »
Whenever I think about the power of compounding, I am reminded of Pilot's famous one-hit wonder titled Magic. I'm sure you know the lyrics, but just in case, it goes something like this:
"Oh, ho, ho, It's magic you know
Never believe it's not so
It's magic you know"
What's so magical about the power of compounding?
That's simple, because the magical power of compounding is one of the best kept secrets of wealth creation. Much like a free ATM machine, this enchanted process allows you to earn income while you are sleeping well at night, and it requires just two things: the reinvestment of dividends and time.
The more time you give your investments, the more you are able to accelerate the income potential of your original investment. So, by utilizing the power of compounding, your portfolio amplifies the growth of your working money and maximizes the earning potential of your investments.
But remember, because time and reinvesting make compounding work, you must keep your hands off the principal and dividends. That's called discipline.
It's a proven way to build wealth, and it's particularly evident in retirement accounts, where principal is allowed to grow for years tax-deferred or even tax-free. Vanguard provides this example:
Source: Vanguard
