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Great opportunity to use this inspiring case of the part-time janitor with an $8 million investment portfolio to teach critical investing and budgeting lessons including the power of compound interest, investing in stocks for long-term growth, living frugally and sharing your wealth.
From CNBC:
Ronald Read, a Vermont gas station attendant and janitor, invested in recognizable names when he amassed an $8 million fortune, according to his attorney. A large part of that fortune was later bequeathed to an area library and hospital after his death, stunning a community that had no idea about his wealth.
Is this another case of a news story touting an unlikely millionaire that turns out not to be true (see this earlier case study on a millionaire who wasn’t)? I think this one rings true. Why? Very simply, the power of compound interest. One fact you should be aware of is that Mr. Read was 92 when he passed away.
Other facts that I was able to gather about Mr. Read:
So, let’s do the math (and see the power of compound interest) to determine how realistic it is that this auto mechanic and part-time janitor could accumulate an $8 million portfolio. Let’s use the following assumptions (if your students are adept at spreadsheets, you can have them follow along as you create an assumptions table 8MM_Janitor that will drive your analysis):
I created a spreadsheet (8MM_Janitor), plugged in these variables and….voila, discovered that his portfolio using these assumptions would have been worth $10.3 million. What is amazing, when I review the spreadsheet, is that he could accumulate a portfolio this large while only saving at most $1,591 in a year (in 1978 or $5,188 in 2014 dollars). So, in this case, it doesn’t appear a stretch to believe that this frugal Vermonter, who chopped his own firewood until the age of 90, could accumulate an $8 million portfolio. For those who noted his prowess at picking individual stocks, it probably would be a surprise that may have done as well buying a passive S&P500 index, which unfortunately would not have been available in 1945 (that didn’t happen until 1976).
So, what lessons can be learned from this humble, unassuming Vermonter?
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Featured Activity: The Power of Compound Interest
Question of the Day: How much would it cost to buy all of the gifts mentioned in the "12 Days of Christmas" song?
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Interactive: The PNC Christmas Price Index
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
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