The Realities of 15% Annual Growth

 

The Realities of 15% Annual Growth

Achieving a 15% compound annual return is a challenging but possible goal that will double your investment in approximately five years. The article outlines what this growth entails in practice:

• The Power of Compounding: A 15% yearly return means your money doubles in 5 years (e.g., $100 becomes $200). This equates to a more modest-looking average of 1.25% growth per month.

• Embrace Volatility, Focus on the Long Term: Returns are never smooth. There will be periods of spurts, declines, and stagnation. Long-term investors should ignore this short-term volatility and focus on whether the company's earnings fundamentals are improving over time, as the stock price will eventually reflect this.

• The Earnings Imperative: For a stock to double in price in five years, the company must also be on a path to double its earnings in that same period.

• Where to Find Such Growth: Mature, large companies are unlikely to deliver this level of growth. Investors seeking 15% returns typically need to look at mid-cap or smaller companies that are in faster-growth phases of their business life.

• A Challenging Benchmark: While making 7-8% per year is more attainable, consistently achieving 15% is very challenging, though not impossible, even for non-professional investors. The key is to focus on the underlying business earnings rather than short-term price movements.