"Life is like a snowball and all you need is some wet snow and a really long hill."
Figure 1: Ronald Read (left), Superinvestor.
Because I am an annoying father who wants to encourage his sons to invest, one of the things I like to collect on this blog are stories of successful, long-term, investors. I loved this story about a janitor, Ronald Read (Figure 1), who recently died at 92 and left an estate worth nearly $8 million dollars. This goes to show how great investing can be if done correctly.
However, he earned his fortune in the old-fashioned way through conservative investing practices and by living a frugal life. As far as his portfolio went, Newsmax reported that
Read's investments included shares of AT&T, Bank of America, CVS, Deere, General Electric and General Motors. "He only invested in what he knew and what paid dividends. That was important to him," his lawyer, Laurie Rowell, told CNBC.
Through regular contributions over a long time, he used the power of compound interest to amass an amazing amount of money. His investment approach epitomized the "snowball" approach that Warren Buffet advocates (see quote that leads this post). To illustrate that even small amounts of money regularly invested over a long period of time can add up, Newsmax and CNBC both stated that
For example, to reach Read's $8 million fortune, Hogan [a financial analyst] calculated that investors would have to invest about $300 a month at an 8 percent interest rate over 65 years.
I illustrate this compound interest calculation below using Mathcad's Future Value (FV) function – Excel has a similar FV function.
Figure 2: Future Value Calculation.