Here’s my golden FTSE 100 investing secret as you aim to make a million and retire early


first_img Jonathan Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Simply click below to discover how you can take advantage of this. I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. 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However, I also read about those who pour life savings into a stock only for it to halve in value. A lot of this stress about potential losses can be avoided by following my prime investing philosophy. I call it an investing secret as you’d be surprised how many people don’t know or follow it!The investing secret is out of the bagFor experienced investors, the term compounding will be a familiar one. But for many new investors, you’ll have never heard about it. The premise is that the longer you leave an investment to benefit from profits that are reinvested, the more likely you are to achieve a higher return than previously. 5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Let’s take an example. You invest £1,000 in a dividend-paying stock. If we assume you receive a dividend yield of 5% per year constantly, then notice what happens over time. After one year your percentage return is 5%. But if you hold it for 10 years, then you benefit from compounding. The dividend you receive you can reinvest into the stock year after year. From a formula point of view, the return would be £1,000 x (1.05)^10. Take your original investment amount and multiply it by 1.05 (5% dividend yield) which in turn is taken to the power of 10 (that’s 10 years of compounding). The result is £1,628.90. Compare this if you’d just invested for the short term. If once you received a dividend, you sold the stock and sat on the sidelines waiting for another opportunity, there’d be no compounding benefit! You’d be getting 50% profit over 10 years at best, instead of the compounded 62.8% shown above.Compounding can also work without dividends. If you invest in a stock that enjoys share price growth of 10% per year, this also acts as compounding profits from your initial investment.Why compounding is so powerfulYes, it can be beneficial to be very active with frequent when buying and selling in the FTSE 100. You may have been able to avoid some of the market crash so far this year if you sold your stocks in early March and bought back at the low levels a couple of months later. But timing the market like this is exceptionally hard and frequent dealing costs can quickly add up. So when looking to make a million and retire early, you need to allow your investment pot to build up over time, and not make short-term (often rash) decisions. Compounding rewards you for being patient and holding stocks for the long term. This is both from the dividends received but also from the share price appreciation over time as well. If you do this over the course of a decade or two, then you can seriously be looking at making larger profits and obtaining the end goal of retiring early. So the way to get on this path is really to start building a pot as soon as possible. Then just allow the compounding impact to begin! Here’s my golden FTSE 100 investing secret as you aim to make a million and retire early Image source: Getty Images center_img Enter Your Email Address Our 6 ‘Best Buys Now’ Shares “This Stock Could Be Like Buying Amazon in 1997” Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. 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