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The mention of a financial three-bagger may inspire visions of Las Vegas or a bet on a 2-to-1 entry at the Kentucky Derby. But the idea isn't as far-fetched as it sounds. If you're a long-term stock investor willing to let your gains compound year after year, you'll likely triple your money and then some. Assuming annual investment gains of 10.4% -- the average return of U.S. stocks since 1926 -- you'll earn 200% in just 11 years.
Darren Pollack, a 37-year-old chiropractor in New York City, says he has more than tripled his money over the past decade. He's done so with a "semi-aggressive" portfolio that includes a gold fund and a small-company index fund that have each tripled in the past five years, and a real estate index fund that has nearly done so.
Had Pollack poured all his money into those hot investments, he could have tripled his portfolio even faster. But with those fat returns comes above-average risk. Pollack has a wife, Shannon, and a 2-year-old son, Cooper, to think about, so he's not swinging for the fences. Instead, he keeps his portfolio diversified in stock and bond funds that may take much longer to triple. Investing is like exercising, says Pollack: "If you do too much at once, you could hurt yourself."
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Aiming to triple your money at too leisurely a pace, on the other hand, brings on risk of a different sort: inflation. You can earn 200% over 20 years in relatively safe bonds. But over long periods, inflation will erode much of that gain. Let's say a $100,000 investment made in 1987 is now worth $300,000. That's just $169,264 in 1987 dollars, after taking inflation into account. We think Pollack has got it about right. There is a place in your portfolio for investments that will triple over various time periods, from short to long. What sorts of investments might go into such a portfolio? Let's take a look....
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