The Simple, Elegant Power of the Retirement Compounders

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Long time readers have surely heard about my Retirement Compounders® portfolio (as well as the Dynamic Maximizers®). I don’t publicize the securities included in these strategies anymore, but they are both still integral parts of my family run investment counsel’s planning toolkit.

Jeremy Jones, CFA, recently wrote of the first 19 years of the Retirement Compounders®:

It has now been 19 years since we started Young Research’s Retirement Compounders Program. Our overriding goal in developing the RCs was to help investors like you achieve investment success with comfort and confidence.

Compounding is the key to long-term investment success. And to reap the profound rewards of compounding, you need time—the more time, the better.

Consider the hypothetical example of an investor who earns 8% on a $100,000 investment. After ten years of compounding at 8%, $100,000 becomes $216,000. After 20 years, $100,000 becomes $466,000. That’s more than four times the initial investment. After 30 years of compounding at 8%, a $100,000 investment becomes over $1,000,000! That’s more than 10X the initial investment.

Here’s what I wrote about the simple elegance of the Retirement Compounders® strategy in December of 2010:

Durability, Ease of Use, and Reliability

I t was minus 5 centigrade on December first, my 72nd birthday, as we departed Kabul, Afghanistan to be joined by Special Forces ODA 594 in the 2001 hunt for bin Laden. My personal gear included one AK-47 and seven magazines of 7.62 ammo. It would be my final combat mission. So recalls Sergeant Major Billy Waugh in Hunting the Jackal. Delta Force Commander Dalton Fury in Kill Bin Laden refers to Billy (a CIA contractor) as His Majesty Sir Billy Waugh. Russian Mikhail Kalashnikov developed the AK-47 that Billy relied on in the mid-forties. To this day, it is the most popular assault rifle in the world. I have fired one and can see how the durability, ease of use, and reliability of a Kalashnikov would be such a winner for America’s most admired and certainly most senior Special Forces/CIA operator.

The Retirement Compounders Model

Ease of use, durability, and reliability, so vital in a basic firearm, have broad applicability for someone like me who specializes in the keep-it-simple school of thought. The Kalashnikov has been used worldwide for over six decades. The durable, easy to use, and reliable formula I advise for you on common stocks has been my working model for nearly five decades. It also has been the basis for Young Research’s specific Retirement Compounders model portfolio since 2003.

Astonishing Record

Look at my display of the history of the Retirement Compounders. Until this writing, I had not worked out the annual Retirement Compounders’ advantage over the S&P 500. Why not? I do not invest with the thought of beating anyone or any index. I invest to collect a high level of dividend income today and a higher level of dividend income (to offset inflation and maintain purchasing power) tomorrow—period. So in all honesty, I was astonished upon calculating the results. I knew that the RCs had a nice annual record versus the S&P 500 (Young Research posts a display on the comparison at www.youngresearch. com), but the detailed results are indeed stunning. At least I think the results are amazing, especially considering that my approach is so conservative and straightforward—sans bells or whistles. At Young Research, we do not visit managements, attend analyst meetings, participate in management quarterly reviews, or calculate company earnings projections. I, for one, could not give even a wild guess on the probable 2010 earnings for a single company on our list. And yet with our basic approach, the comparative results have been remarkable.

Simple Can Be Elegant

My Retirement Compounders model has been in place for nearly eight years. This eight-year period has been hell for investors, as each of us knows all too well. Throughout the carnage, we have not deviated one iota from our reliable dividend approach. Perhaps this is the reason our family-run investment management company has such appeal for seasoned, discerning, conservative investors. Simple can be elegant, as I have found over many decades of doing the same thing year after year.

Find a simple, elegant plan for your own investing. Avoid complex strategies that place too much emphasis on timing and prediction. Remember that any plan worth pursuing should be durable, easy to use, and reliable.

Originally posted on Young’s World Money Forecast.