The Government Doesn't Want You to Use This Amazing Strategy

Today I'm going to give you the most important investment advice you'll ever receive.

You should never invest again without doing this. This technique is something Warren Buffett knows, Sam Zell knows, Bill Gates knows, and Peter Lynch knows. It works for bonds, currencies, stocks, real estate, and the money in your bank account. 

Einstein called this technique the most powerful force in the universe. It should be the first financial lesson you teach your children.

Investor A starts investing in an IRA account at age 26. He deposits $2,000 into his IRA each year. He invests this money in a portfolio of safe stocks that pay 10% dividends. He continues these contributions until he retires at age 65.

Investor B starts investing in an IRA account at age 19. He also deposits $2,000 each year and invests in the same 10% dividend portfolio. Investor B only makes seven contributions. After age 26, he makes no more payments.

Their stock portfolios show no share-price appreciation. They just crank out 10% dividends each year. On their 65th birthdays, the two investors compare the balances in their accounts.

(I got this study courtesy of Market Logic of Fort Lauderdale, Florida, and Richard Russell's Dow Theory Letters.)

Even though investor B only made seven contributions, he ended up with more money than Investor A, who made 40 contributions. The trick is, investor B started seven years earlier than A. So on the day investor A made his first contribution, Investor B had already accumulated $22,959 and his portfolio was spinning off $2,296 a year in dividends.

This study demonstrates the incredible power of compound earnings. Warren Buffett, Peter Lynch, Sam Zell, and Bill Gates all used it to create fortunes. The beauty is, it's safe, it's mathematically certain, and anyone can do it.

To compound your money into a fortune, you need four things:

Compounding takes time. The more time you give it, the more money it'll generate for you. This is why it's so important to teach your children about compounding. Time is the driving force.

You need commitment. Compounding is boring. It requires no trading, predicting, or risk taking. That's because there is no risk. Most people don't have enough self-control to let their investments stand for long periods of time.

You need to save. No one likes to save money... especially 19-year-olds. But for compounding to work, you need to save money from a young age.

Finally, you need a safe investment that generates interest, dividends, or retained earnings. Small increases in yield turn into huge increases in fortune when you compound over many years.

Right now, the government is doing everything it can to prevent you from using this amazing technique. It cut interest rates to zero. It's inflating the money supply, which undermines true interest rates. And it would like to raise tax on dividends and interest receipts.

Fortunately, there are still ways to make compounding work for you. Take advantage of 401ks, IRAs, DRIP plans, and tax-sheltered investments like MLPs. They'll defer your tax liabilities until you're finished compounding.

Look to the stock market for safe, high-yield investments. The financial crisis was a huge stroke of fortune for young income investors. The safest municipal and investment-grade corporate bond funds are paying yields over 10%. The riskier ones will pay you over 20%. You can make 20% income by selling covered calls on the strongest American blue-chip stocks. Even boring pipeline investments pay 10% dividend yields.

If you want to be rich, you should build a portfolio of these safe, high-yield investments, shelter them from tax, add to your account every year, and let your earnings compound for 40 years. You'll easily accumulate a million dollars, and probably a lot more...

Good investing,

Tom