The Easiest Way to Make $1 Million in the Stock Market

In this essay, I'm going to show you the No. 1 strategy for retiring wealthy.

By embracing this strategy, you'll be on the road to riches. Ignoring it and getting lazy about using its power means you'll never have a chance for the lifestyle you want.

But before I go on, let me warn you: You're probably not interested in what I have to say. It's not some gold stock that's going to the moon. It's not sexy. It's not a quick fix.

The secret is not hard to grasp. You just have to understand a few simple principles. But as you might imagine, it does take some time and a little effort on your part. And you have to start taking advantage of it right now.

It starts with one simple idea... compound returns.

If you're not sure what compound returns are, don't worry. It's easy to understand and a powerful tool when you put it to work.

Simply stated, compound returns are money you make off the money you make. And the more money you make, the more money your money makes off the money your money makes. I hope you're smiling, but here's what happens...

Imagine you're 40 years old, have a $10,000 investment account, and subscribe to my Retirement Millionaire letter. In one year, our portfolio's conservative blend of assets returned a fantastic 18%. If you kept reading year after year and kept making consistent 18% annual returns, what would happen to your portfolio by the time you retire at the age of 68?

You'd have earned $1 million.

The numbers are simple: If you start investing with $10,000 at the end of the first year, you'll have about $11,800 (not including taxes or fees). You made $1,800 on your initial investment.

But in your second year... you're not starting over at $10,000. The $1,800 you earned in the first year will be making money for you, too. So assuming gains of 18%, you'll have earned another $1,800 on your original capital plus another $324 on the profits from the previous year's $1,800.

You're not just multiplying $1,800 times 25 years. (That only gives you $45,000.) Where does the other $903,000 come from? That's the secret. The money starts making money on top of itself – your money is compounding.

The money you make in the first year, in this case $1,800, starts making money in the second year, third year, and so on... It continues this way for every stream of money you compound. So the $1,800 you make in your second year also makes $324 in the third.

But there's more. The $324 you make in the second year generated by your first $1,800 now makes $58.32 on itself in the third year. Take a look at the diagram below and you'll see how by the end of your third year, you'll have $16,430.

And the money just keeps building. Take a look at the chart below. You can see how much money you'll have at the end of each year. By age 68 (28 years of compounding), it totals nearly $1 million. And if you wait another couple years, until age 70, the compounding effect starts to explode. At that point, you have almost $1.5 million.

You can see why this secret is so powerful. By plowing your earnings back into your portfolio, you can get your money working for itself and amass a fortune from your initial investments.

It sounds almost nonsensical... but this idea has incredible power. If you start with a $10,000 portfolio at age 40, you can have more than $1 million by the time you retire.

And it turns out, that's chump change. Now, I'll show you the REAL secret to creating wealth through compounding.

This secret is almost as simple as compounding itself. Like compounding, this secret is not "sexy." It's not a hot stock tip. But it can create astounding levels of wealth for investors who follow it. I know because both my father and my sister used it to create a worry-free retirement.

My dad was a fantastic doctor, bright and kind with his patients. But he was a terrible investor. I watched him get greedy (like most people do). I watched him let his losers run and cut his profits off early (like most people do). Occasionally, he'd buy off some tip at a cocktail party (like most people do)...

Luckily, his trading account was just for "play" money, and he rarely paid a lot of attention to it. His retirement account was a different thing. With that money, he took advantage of the one thing that can make anyone wealthy...

My sister did, too. She lives in Bozeman, Montana with her husband and two sons. Their house offers a beautiful view of the mountains. They have the time and money to do most anything they want. I shared today's secret with her about 25 years ago... and she credits me with showing her the way to becoming a millionaire.

You can see the secret in action in this chart:

The red bars represent the strategy I showed you yesterday. And it works: $10,000 turns into more than $1 million. But look at the other bars...

The yellow bars represent my dad's strategy. In my father's case, he started tucking a little bit of money away each year in the retirement plan his university offered for professors. I don't have the exact numbers. But it wasn't as much as the initial amount he used to open the account.

You can see how starting with $10,000 and then just putting $5,000 a year for the next 20 years makes a person a millionaire by age 60. That's nearly eight years sooner than the plan I showed you previously.

If you continue for just another five years (25 years total), you're a multimillionaire. If you maintain this strategy until age 68, you'll be worth nearly $4 million ($3.862 million to be exact).

Think about this for a minute. You start at age 40, earning what we've been earning in my Retirement Millionaire newsletter (18%) in a balanced and safe mix of securities. You begin with $10,000 and add a little bit more each year ($5,000). And voilà... You're a millionaire at age 60.

Now look at the blue bars, which represent my sister's strategy. What my sister did was apply these same principles in her first job. And she made sure that for every job and raise thereafter, she added a little bit more to the retirement kitty.

But for her, it was much easier. She started a lot younger and didn't have to put much in (she didn't have much to put in). The chart shows what happens if, like my sister, you start at age 20 with only $2,000 and put in just $300 a year after that... You become a millionaire by age 54.

At that point, you've put in a total of $10,200 – and earned $990,000 on the original investments. And if you wait five more years, you become a multimillionaire at age 59. That's a spectacular return on an $11,700 investment plan. (It's 17,000% if you're scoring at home.)

As I showed you with my father's story, you don't need 50 years to appreciate the power of compounding. But as my sister's example proves, the more time you have, the more you can supercharge the power of compounding.

So I suggest you share this "secret" with your friends and family. If you have children or grandchildren, they need to know about savings and investing. One way to teach them is with the story of my sister... how she started with little, added some money every year, and saw it grow to millions of dollars.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig