It's a dream to one day become a millionaire.
Yet these days, that's all it seems to be: a dream.
House prices are skyrocketing, making it that much harder for people (young people, in particular) to ever own a home. In fact, the International Monetary Fund reports that Australia boasts the third highest house price-to-income ratio in the world, highlighting that lack of affordability.
Meanwhile, the mining boom has all but gone, leaving many to wonder what the outlook is for our economy over the next few years, and even decades.
Unemployment is on the rise; business and consumer confidence levels are way down and interest rates are at a record low – and set to fall even further.
The list goes on…
On top of these economic issues, there are plenty of other expenses that are also getting in the way of our dream.
Mortgage payments and expensive holidays; our children's education and those darn utility bills, amongst other hefty outlays.
It is for these reasons that most Australians assume they will never attain that millionaire status.
Why absolutely anybody can become rich – including you
It might surprise you to learn that there are 1.2 million millionaires in Australia, according to a new Global Wealth Report by Credit Suisse.
Research by Investment Trends shows that a massive 43,500 millionaires were added to that list in 2014 alone, largely due to investment property markets and a rampaging equity market.
In addition, the research also shows there are 580,000 "emerging" high net worth Australians with $500,000 to $1 million in investable assets.
The pleasing thing is, most of these millionaires are actually self-made. They're people just like you and me who didn't necessarily come from wealthy upbringings or inherit strong family businesses. Instead, many actually made their fortunes by investing in publicly traded shares – the same ASX stocks we all have access to.
Just look at Warren Buffett, the world's greatest investor. When he graduated from college, he had less than $10,000 to his name. Now, he's the world's third richest person with a net worth of US $72.7 billion, according to Forbes.
Granted, it's possible that no investor will ever share the same level of success as Buffett has enjoyed over the last six or so decades. But I'm not kidding when I say that the stock market can be a gold mine for people like you and me.
And regardless of whether or not you're willing to join me, I have a plan that I believe is going to make me very rich, just like those other smart Aussies.
Before I share my plan, let me show you three of the stocks that I believe are going to help me build serious wealth in the years to come.
My three top stocks for long-term wealth (hint: not the banks or Telstra!)
When I buy stocks, I don't want to buy speculative companies that could hit the jackpot in the future. Or ones that could quadruple in price just because an 'expert' says they will…
Instead, I simply look for companies that are trading at reasonable prices and offer significant growth potential.
Put simply, if you're looking for a get-rich-quick scheme, you're not going to find it here. What you will find however, are three companies that should be bought and held for a very long time – even with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) trading near a seven-year high.
Right now, I'm not even talking about the usual suspects like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) or Telstra Corporation Ltd (ASX:TLS) – all of which I consider to be overvalued.
The companies I'm talking about are the ones I think will, from their current valuations, deliver market-smashing returns in the long run.
Stock #1: How much are your pets worth?
When a stock is sold off heavily, investors need to determine whether or not there is a legitimate reason behind the selling activity, or whether it is creating a perfect buying opportunity. In the case of Greencross Limited (ASX: GXL), it certainly seems to be a case of the latter.
Greencross is Australia's leading veterinary services provider, but actually makes the vast majority of its revenues from retail stores since its merger with Petbarn and acquisition of City Farmers. With an estimated 8% share of the local market, Greencross is targeting 20% market dominance, which it will strive to achieve by acquiring smaller businesses as part of its 'roll-up' strategy.
Between 2011 and mid-2014, the stock skyrocketed more than 1,500% to hit a high of $10.78, but has since retreated 29% to be trading at $7.66. With strong earnings growth forecast for the company over the next few years, Greencross could make for an exceptional addition to your portfolio today.
Stock #2: From Xero to Hero
Accounting software provider XERO FPO NZ (ASX: XRO) ("Xero") has taken its shareholders on a rollercoaster ride since its debut on the ASX. Between late 2012 and early 2014, the stock surged more than 870% to max out at around $43 per share before retreating to a low of just $13.76. It has since rebounded to $23.60, but still presents as excellent value for long-term investors.
Xero is a pure cloud-accounting software provider which has become increasingly popular amongst accountants. In fact, it recently announced that it had surpassed 200,000 Australian customers (nearly double the 109,000 customers it had in March 2014), while it has also become the dominant player in its home New Zealand market. Expansion into the UK and the US also offers investors plenty of excitement for its enormous growth potential.
Before I reveal my #3 stock pick with you, I'll fill you in on my plan to grow my wealth exponentially.
How I lost money… but gained a 'wealth' of knowledge
Like a lot of people, when I first started investing, I was gung-ho on making a quick buck. I wasn't interested in finding the most promising or well-run companies – I just wanted to find a stock that would pop overnight.
Of course, that approach resulted in plenty of disappointment and needless to say, my cash balance took a bit of a beating.
My attitude has completely changed since then. I am no longer focused on making a fortune overnight, but instead employ a much longer-term approach which could see my wealth grow exponentially over the years.
Patience and composure are the keys for me, and they should be for you too. While it would be nice to make a sweet fortune overnight, history has proven that long-term buy-and-hold investing delivers superior results.
In fact, an article by Dr Shane Oliver of AMP Limited highlighted that the stock market has grown at an average annual rate of 12% per annum since 1900.
To highlight how incredible that is, consider this simple example:
Say you'd invested just $1 measly dollar in shares in 1900. And since then, you'd reinvested all your dividends and achieved the market's average returns.
Believe it or not, that $1 would now be worth more than $400,000. Imagine how much you'd be worth if you'd invested $100 back then, or even $1,000…
So that's my plan. By buying high quality companies trading at reasonable prices, I'm going to hold them over the coming years and let compounding work its magic.
It might not sound that exciting, but I expect the results could be truly incredible.
Stock #3: My favourite ASX pick for the next decade
While it may seem like a 'boring' pick, Woolworths Limited (ASX: WOW) could be one of the best long-term buy-to-hold investments you make in 2015.
Since hitting a fresh all-time high at $38.92 almost 12 months ago, the supermarket giant has plunged more than 24% to be trading at just $29.56 currently. While it is expected to pay $1.39 per share in dividends in the 2015 financial year (FY15), that puts the stock on a fully franked yield of nearly 4.7%. Grossed up, that's a 6.7% dividend yield!
Right now, it seems as though investors are focused on the company's titanic struggle against rival Wesfarmers Ltd (ASX: WES); its struggling Masters Home Improvement chain and the threat being posed by Costco and Aldi. While these matters should certainly be watched, the company has proven its ability time and again to generate enormous returns for investors and that shouldn't change anytime soon.
Although most of Woolworths' growth is now in the past, I expect the company will still deliver fantastic profits over the coming years, and even decades.
Even better: Here's another ASX company with the recipe for tremendous long-term returns
