The Power Of Compounding Stock Gains

In my last post I talked about swing trading and how it can be used to increase your portfolio value over time. I showed a few ideas on just how even a small amount of money in your portfolio can make a huge impact in your financial future. 

I was once given the example of how water can be used used to split a rock if it is used correctly. If you place a giant boulder under a water tower and then open a valve under the tank of the tower and release all the water at once you will have a very wet and unsplit boulder. However, if you only crack open the valve enough to allow one drip at a time to fall and hit the rock over a much longer period of time the same amount of water will eventually cut through the rock splitting it into two pieces. My point? It is not how much big stuff you do that makes the greatest change, it is how much consistent small efforts you do with laser focus on the goal that brings the most amazing results. 

Below is an example of just how that little drop of water looks like when you compound your stock gains. In the example we will start with $2500 and for the sake of this example we are going to assume we are able to buy fractional shares of one of my favorite index exchange traded fund SPY enabling me to reinvest the full amount each time I take profits. Also, I will be taking profits at exactly 5% gain each time. It is safe to say that such a perfect world does not exist, but it is so much fun to play around with the numbers. It also makes for a good checklist to mark through as you pass each level of the trades, that is, if you're not afraid of putting all your eggs in one basket. I personally don't look at putting all my money into SPY as "putting all my eggs in one basket" since it is an actually a very broad spectrum of the S&P 500.  Use the list as you wish, but it is intended for informational purposes and as an example of compounding returns. 

1.  $2,500 x 5% = $125
2. 2,625 x .05 = 131.25
3. 2,756.25 x .05 = 137.81
4. 2,894.06 x .05 = 144.70
5. 3,038.76 x .05 = 151.93
6. 3,190.69 x .05 = 159.53
7. 3,350.22 x .05 = 167.51
8. 3,517.73 x .05 = 175.88
9. 3,693.61 x .05 = 184.68
10. 3,878.29 x .05 = 193.91
11. 4,072.20 x .05 = 203.61
12. 4,275.81 x .05 =213.79
13. 4,489.60 x .05 = 224.48
14. 4,714.08 x .05 = 235.70
15. 4,949.78 x .05 = 247.48
16. 5,197.26 x .05 = 259.86
17. 5,457.12 x .05 = 272.85
18. 5,729.97 x .05 = 286.49
19. 6,016.46 x .05 = 300.82
20. 6,317.28 x .05 = 315.86
21. 6,633.14 x .05 = 331.65
22. 6,964.79 x .05 = 348.23
23. 7,313.02 x .05 = 365.65
24. 7,678.67 x .05 = 383.93
25. 8,062.60 x .05 = 403.13
26. 8,465.73 x .05 = 423.28
27. 8,889.01 x .05 = 444.45
28. 9,333.46 x .05 = 466.67
29. 9,800.13 x .05 = 490.00
30. 10,290.13 x .05 = 514.50
31. 10,804.63 x .05 = 540.23
32. 11,344.86 x .05 = 567.24
33. 11,912.10 x .05 = 595.60
34. 12,507.70 x .05 = 625.38
35. 13,133.08 x .05 = 656.65
36. 13,789.73 x .05 = 689.48
37. 14,479.21 x .05 = 723.96
38. 15,203.17 x .05 = 760.15
39. 15,963.32 x .05 = 798.16
40. 16,761.48 x .05 = 838.07
41. 17,599.55 x.05 = 879.97
42. 18,479.52 x .05 = 923.97
43. 19,403.49 x .05 = 970.17
44. 20,373.66 x .05 = 1,018.68
45. 21,392.34 x .05 = 1,069.61
46. 22,461.95 x .05 = 1,123.09
47. 23,585.04 x .05 = 1,179.25
48. 24,764.29 x .05 = 1,238.21
49. 26,002.50 x .05 = 1,300.12
50. 27,302.62 x .05 = 1,365.13
51. 28,667.75 x .05 = 1,433.38
52. 30,101.13 x .05 = 1,505.05
53. 31,606.18 x .05 = 1,580.30
54. 33,186.48 x .05 = 1,659.32
55. 34,845.80 x .05 = 1,742.29
56. 36,588.09 x .05 = 1,829.40
57. 38,417.49 x .05  = 1,920.87
58. 40,338.36 x .05 = 2,016.91
59. 42,355.27 x .05 = 2,117.76
60. 44,473.03 x .05 = 2,223.65
61. 46,696.68 x .05 = 2,334.83
62. 49,031.51 x .05 = 2,451.57
63. 51,483.08 x .05 = 2,574.15
64. 54,057.23 x .05 = 2,702.86
65. 56,760.09 x .05 = 2,838.00
66. 59,598.09 x .05 = 2,979.90
67. 62,577.99 x .05 = 3,128.89
68. 65,706.88 x .05 = 3,285.34
69. 68,992.22 x .05 = 3,449.61
70. 72,441.83 x .05 = 3,622.09
71. 76,063.92 x .05 = 3,803.19
72. 79,867.11 x .05 = 3,993.35
73. 83,860.46 x .05 = 4,193.02
74. 88,053.48 x .05 = 4,402.67
75. 92,456.15 x .05 = 4,622.80
76. 97,078.95 x .05 = 4,853.94
77. 101,932.89 x .05 = 5,096.64
78. 107,029.53 x .05 = 5,351.47
79. 112,381.00 x .05 = 5,619.05
80. 118,000.05 x .05 = 5,900.00
81. 123,900.05 x .05 = 6,195.00
82. 130,095.05 x .05 = 6,504.75
83. 136,599.80 x .05 = 6,829.99
84. 143,429.79 x .05 = 7,171.48
85. 150,601.27 x .05 = 7,530.06
86. 158,131.33 x .05 = 7,906.56
87. 166,037.89 x .05 = 8,301.89
88. 174,339.78 x .05 = 8,716.98
89. 183,056.76 x .05 = 9,152.83
90. 192,209.59 x .05 = 9,610.47
91. 201,820.06 x .05 = 10,091.00
92. 211,911.06 x .05 = 10,595.55
93. 222,506.61 x .05 = 11,125.33
94. 233,631.94 x .05 = 11,681.59
95. 245,313.53 x .05 = 12,265.67
96. 257,579.20 x .05 = 12,878.96
97. 270,458.16 x .05 = 13,522.90
98. 283,981.06 x .05 = 14,199.05
99. 298,180.11 x .05 = 14,909.00
100. 313,089.11 x .05 = 15,654.45
101. 328,743.56 x .05 = 16,437.17
102. 345,180.73 x .05 = 17,259.03
103. 362,439.76 x .05 = 18,121.98
104. 380,561.74 x .05 = 19,028.08
105. 399,589.82 x .05 = 19,979.49
106. 419,569.31 x .05 = 20,978.46
107. 440,547.77 x .05 = 22,027.38
108. 462,575.15 x .05 = 23,128.75
109. 485,703.90 x .05 = 24,285.19
110. 509,989.09 x .05 = 25,499.45
111. 535,488.54 x .05 = 26,774.42
112. 562,262.96 x .05 = 28,113.14
113. 590,376.10 x .05 = 29,518.80
114. 619,894.90 x .05 = 30,994.74
115. 650,889.64 x .05 = 34,544.48
116. 683,434.12 x .05 = 34,171.70
117. 717,605.82 x .05 = 35,880.29
118. 753,486.11 x .05 = 37,674.30
119. 791,160.41 x .05 = 39,558.02
120. 830,718.43 x .05 = 41,535.92
121. 872,254.35 x .05 = 43,612.71
122. 915,867.06 x .05 = 45,793.35
123. 961,660.41 x.05 = 48,083.02

Grand total of $1,009,743.43. Just to recap, if you were to make 123 trades starting at $2500 and gaining exactly 5% with each trade this would be the outcome. Is it possible? Yes, but it would be very difficult. Has it been done before? Well, there have been many people who have made swing trades to millions starting with only thousands over a period of only a few years. This scenario is only for demonstration purposes and should not be used as trading advice.

Remember to always spread your investment dollars into many sectors and industries. 

Keep an eye out for my first trades coming up this week some time. Until then, happy trading!