Be like Grace

5 Lessons From an Unlikely Millionaire

By Selena Maranjian 
April 8, 2010 

Lake Forest College administrators knew their school would receive most of Grace Groner's estate when she passed on, but they probably didn't expect much. Groner, who died in January at the age of 100, lived in a small one-bedroom house. She'd been a secretary once, but retired long ago.

So the college must have been surprised to receive a whopping $7 million from Groner's estate. How did this modest woman amass such wealth?

1. Buy stocks
Groner's wealth began with $180, which she invested in three shares of her then-employer,Abbott Labs (NYSE: ABT).

Stocks are tied to brick-and-mortar-and-flesh companies -- real businesses that can grow robustly for years to come. That's why companies such as IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ) outperformed the market for so long. When companies increase their profit margins, revenue, and market share over time, their stock prices will likely rise as well.

Over the long haul, stocks have outperformed other investments by leaps and bounds. Check out what just $1 invested in various ways between 1802 and 2006 would have grown to:

Investment	Real Return, in 204 Years
Dollar	$0.06
Gold	$1.95
T-bills	$301
Bonds	$1,083
Stocks	$755,163

Data: Jeremy Siegel, Stocks for the Long Run.

2. Respect your circle of competence
It's not just enough to buy stocks, of course -- you've got to buy the right stocks. Every year, public companies go bankrupt, and the money invested in them vanishes.

Restricting yourself to companies you understand will go a long way toward protecting your investments. Ms. Groner may or may not have understood pharmaceutical science, but she knew the company she worked for.

That applies to hobbies as well as professions. If you're an inveterate shopper, you'll have a sense of whether Wal-Mart (NYSE: WMT) and Best Buy (NYSE: BBY) are doing well, and you'll likely be able to learn their business models. If you read computer magazines for fun, you probably have a decent handle on the prospects of computer-related companies.

That said, familiarity alone doesn't make a company a good buy. If it isn't turning a profit, can't pay down its debt, or simply demands too lofty a price for its shares, you're better off looking elsewhere.

3. Be patient
Groner bought her three shares of Abbott Labs in 1935. That gave her 75 years of compounded growth!

The power of compounding is critical to developing wealth. If you average just 8% returns annually for 75 years, that's enough to turn $5,000 into $1.6 million.

Odds are you don't have 75 years left in you -- but even shorter periods are still quite powerful. For most of us, 30 years is a more realistic time frame. Combining three decades of compounded growth with strong, flourishing companies can make quite a difference indeed.

Company	Time Span	Avg. Annual Growth	Would Turn $10,000 Into...
PepsiCo	30 years	17.0%	$1.1 million
ExxonMobil (NYSE: XOM)	30 years	15.4%	$740,000
3M (NYSE: MMM)	30 years	12.7%	$357,000

Data: Yahoo! Finance. Average annual growth includes splits and dividends.

Of course, we're never guaranteed long-term growth from one company, but a nest egg diversified across a bunch of solid and growing companies will tend to do well over long periods.

Just remember that letting a winner keep winning for decades means resisting the urge to sell just because the market swoons. Sell if the company no longer seems promising; otherwise, hold on.

4. Don't be afraid to start small
Groner's gift also demonstrates the power of modest amounts of money. Remember, she began with an investment of just $180 in 1935. Adjusted for inflation, that's the equivalent of less than $3,000 in today's dollars -- still not a king's ransom.

In other words, every little bit helps. Small sums invested regularly can go a long way to making us wealthy.

5. Reinvest those dividends

Instead of taking the payouts from her Abbott shares, Groner used them to buy additional shares of stock, which then grew on their own, paying out their own dividends. Over 75 years -- or even 20 or 30 -- those ever-accumulating payouts can become quite powerful.

My colleague Rich Greifner has pointed out that between January 1926 and December 2006, 41% of the S&P 500's total return came from dividends, not price appreciation. Over that time span (just a little longer than Groner had), an investment of $10,000 would have grown to $1 million without dividends. But with dividends reinvested, it would have totaled $24 million. Yowza.

Be like Grace
The five lessons listed above helped an amateur investor turn $180 into $7 million. Who knows where they might lead you?

http://www.fool.com/investing/dividends-income/2010/04/08/5-lessons-from-an-unlikely-millionaire.aspx

Help Teach These Kids How to Fish

By Chuck Saletta | More Articles 

December 31, 2010 | Comments (0)

There's an old saying: If you give a man a fish, you'll feed him for a day, but if you teach that man to fish, you'll feed him for a lifetime. When it comes to extending that parable to handling money, truer words have never been spoken.

Money, if not handled well, can be very fleeting. Multimillionaire athletes, celebrities, and lottery winners have all wound up broke. On the flip side, there are stories of people like Grace Groner, who managed to turn a modest income into amazing wealth through prudent long-term money management.

Good habits start earlyThere's an enormous difference between income and wealth, and it's surprisingly easy to have a very large income, but not be able to save or invest a bit of it. Without an investing mentality, income alone will never turn into wealth. On the other hand, as Grace Groner's story showed, you don't need to earn a fortune to wind up with one, if you manage what you've got well.

That's an amazingly powerful message that, if it can be driven home to at-risk youth, can help them escape the cycle of abject poverty that may have plagued their families for generations. And it's a message that needs to get through to people early, for two critical reasons:

• The earlier that people understand how to manage money, the longer time they have for their little bit of cash to compound in their favor.
• It's far too easy to get trapped into financial pain in things like payday loan traps from short=term decisions made without a full understanding of the long-term consequences.

With that reality in mind, The Motley Fool has chosen Thurgood Marshall Academy as this year's Foolanthropy recipient. The academy is a Washington, D.C., charter school whose students are drawn from an area with an average per-capita income around $14,000 per year, just about one-third of the national average. For people in that situation, every penny counts, and there's not much keeping them from getting trapped in a state of perpetual indebtedness.

With Foolish financial training to go along with Thurgood Marshall's mission to provide a first-class education, these students can break free from the bonds of generational poverty. In essence, the Fool and Thurgood Marshall Academy are teaming up to teach these students how to financially fish -- so that they may eat for a lifetime.

Break the bonds that tieOne of the most powerful Foolish lessons for these students explains credit card debt, and how a $20 pizza can wind up costing $100, if financed over time on a credit card. But what happens if you take that lesson to the next level, and show what can happen to that $20 if it gets invested, rather than spent on pizza in the first place?

With a long-term perspective, the same compounding that would cause a $20 pizza to really cost $100 can turn that $20 into something far more useful -- if it's invested well. And while you may think that $20 may be too little to invest, there is one type of investment that often accepts even small-scale contributions at or around that level. They're called Dividend Reinvestment Plans (DRIPs), and they can be a great opportunity for people without much cash to join the investor class.

Companies that kids may be familiar with that offer DRIPs include:

Company	Initial DRIP Enrollment	Minimum Optional Contribution	$20 Invested for 20 Years Turned Into	More Information
Hershey(NYSE: HSY)	$250 or 1 Share of Stock	$25	$156.89	Click Here
McDonald's(NYSE: MCD)	$500 or 10 Shares of Stock	$50	$287.28	Click Here
Nike (NYSE:NKE)	$500 or 1 Share of Stock	$50	$491.47	Click Here
PepsiCo(NYSE: PEP)	$250 or 1 Share of Stock	$50	$157.04	Click Here
Verizon(NYSE: VZ)	$250 or 1 Share of Stock	$50	$65.46	Click Here
Walt Disney(NYSE: DIS)	$250 or 5 Shares of Stock	$50	$105.47	Click Here

While they all offer DRIPs, most are not exactly the friendliest for small investors, thanks to high enrollment minimums, high optional purchase minimums, and/or investment fees.

On the flip side, 3M (NYSE: MMM) has an extremely friendly DRIP for small investors. Once you have the single share you need to join the plan, you can invest as little as $10 at a time, and the company covers all purchase and dividend reinvestment fees in the plan. Of course, kids may not know 3M products as well as they do the Disney princesses, but they have at least likely used 3M's Scotch Tape and Post-It Notes.

Simple lessons -- powerful resultsWhether it's "invest even small amounts early" or "avoid paying stupid fees," if the lessons really sink in, then they're laying the foundation for true long-term financial success. Of course, past performance is no guarantee of future results, but any possible investing result is better than paying $80 in interest charges on a long-ago forgotten $20 pizza.

You don't need an MBA in finance -- or even a college degree, for that matter -- to benefit from understanding the basics of personal finance. And if this year's Foolanthropy campaign is successful, the students at Thurgood Marshall Academy will benefit enough to become successful financial fishermen. When all is said and done, isn't that all that really matters?

http://www.fool.com/foolanthropy/2010/12/31/help-teach-these-kids-how-to-fish.aspx

Pearls of wisdom from the world's second richest man, Warren Buffett.

The 80-year old billionaire said: 'Wall Street does a lot of good things and then it has this casino.' 

6:30AM GMT 26 Dec 2010

On shareholders:
"We much prefer owners who like our service and our menu and return year after year."
"For our part, we do not view Berkshire shareholders as faceless members of an ever-shifting crowd, but rather as co-adventurers who have entrusted their funds to us for what may well turn out to be the remainder of their lives."

On owning a small number of shares:
"Anyone owning such a number of securities... is following what I call the Noah School of Investing – two of everthing. Such investors should be piloting the ark."

On investing:
"I call investing the greatest business in the world because you never have to swing. All day you just wait for the pitch you like; then, when the fielders are asleep, you step up and hit it."

On debt:
"It's a very sad thing. You can have somebody whose aggregate performance is terrific, but if they have a weakness – maybe it's with alcohol, maybe it's susceptibility to taking a little easy money – it's the weak link that snaps you. And frequently, in the financial markets, the weak link is borrowed money."

On Coca-Cola:
"If you gave me $100bn and said take away the soft-drink leadership of Coca-Cola in the world, I'd give it back to you and say it can't be done." It owns the company that powers lights each morning for 3.8 million homes in Yorkshire, Northumberland and Lincolnshire – CE Electric. It is the biggest owner of Coca-Cola shares and this year spent $26bn (£17bn) buying a railway company headquartered in Fort Worth, Texas. Its market capitalisation is bigger than Google.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8223002/The-magic-of-Berkshire-Hathaway-Warren-Buffett-in-quotes.html

Portfolio Management For The Under-30 Crowd

by Jonas Elmerraji 

Face it: as an individual under 30, you're not the average investor, and modeling your portfolio after that of your parents isn't always a good idea. In fact, doing so can cause you to miss out on some valuable learning opportunities and, in the long run, even cost you money. If you want to make the most of your money, every decision you make about your portfolio is as important as the last. In this article we look at the unique set of challenges involved in portfolio management for young investors and provide some advice to help you succeed.

Picking Stocks

Obviously, picking the right stocks is one of the most important aspects of investing intelligently. However, as a young investor, you have a lot less to worry about - namely retirement and wealth maintenance. Because preserving yournest egg needn't be your first priority (you have plenty of years ahead of you for that) you can take on a greater amount of riskthan your parents. (For more on this, seeThe Seasons Of An Investor's Life.)

High risk certainly has some negative connotations, especially when you're talking about your money. Nevertheless, there are a lot of advantages to dealing with riskier stocks. While higher risk investments do come with a greater chance of loss, they also come with a greater chance of gain. In other words, these stocks are subject to volatility. This is in contrast to more stable investments, such as those made in blue chip companies that generally have lower growth potential but also benefit from lower risk. (To learn more, see theGuide To Stock-Picking Strategies.)

There is a wide range of riskier investments in the stock market, including small companies with high growth potential or companies in the midst of a turnaround. Taking a chance on one of these companies can greatly improve the returns you can earn in the market. However, don't forget that high-risk stocks live up to their name, so you stand the chance of losing the money that you invested. If you do, it's all right - virtually every investor suffers losses from time to time - chalk it up to experience and try again. (To read more, see Venturing Into Early-Stage Growth Stocks.)

While higher risk investments have the potential for higher returns, there's a difference between a high-risk stock and a bad pick. Hopefully, you won't learn this the hard way. An important thing to remember in this case is that a high-risk investment doesn't necessarily refer to a penny stock. Investing in penny stocks as an inexperienced investor isn't just very risky, it's very ill advised. It's best to leave that to people who know what they're doing. (For further reading, check out Determining Risk And The Risk Pyramid, The Lowdown On Penny Stocks and Catching A Lift On The Penny Express.)

Learning

Your portfolio isn't just for making money - at this stage in your life, it's also an educational tool. Believe it or not, a classroom isn't the best way to learn about the principles of investing. Learning by doing is often the most effective way to become a knowledgeable investor. When you make a decision about your portfolio, always think about what you're doing and look back on it when assessing your results. If you can make connections between your actions and your returns, you're more likely to replicate the good returns and avoid the bad ones. (For more insight, see Achieving Better Returns In Your Portfolio.)

Stepping into investing isn't easy. There's a learning curve involved in the stock market, and it's steeper for some than others. If you're having a hard time understanding the investing world, remember that it's not supposed to be easy - that's why the Wall Street wizards make the big bucks. There are resources around to help you, both online and in the real world. If something really has you stumped, ask your broker for help - it's part of his or her job to make sure that you understand what's happening to your money. (To read more, see Picking Your First Broker.)

Though it may take you a while to get the hang of it, there are advantages to being a young investor. This generation is probably more financially savvy than the ones that preceded it. Having witnessed huge economic changes and trends, not to mention all of the investing education resources now available (online, in books and magazines, on TV), today's young investors have a substantial edge over their predecessors.

Getting Started

Eventually, you'll have to take the big step - actually buying a position in a company. When you finally make that investment, spend plenty of time thinking about what you're doing - don't just wing it. Think about a reasonable target price (this becomes easier to judge with experience) and understand what impact your investment budgethas on your ability to make money. If you anticipate 10% returns, but spread your positions too thin, the return you'll need just to get past commissions could be close to or more than 10%. It's a pretty lousy feeling to pick a good performer but not make any money on it because you didn't think about what the investment would cost you in terms of commissions and fees. Therefore, depending on how much money you have to invest, you might be in a better position to sink your entire investment budget into one stock than you would be to spread it thinly across several stocks. (For more insight, see Start Investing With Only $1,000.)

When you have a stock that's performing the way you want it to, one of the hardest things to do can be getting out. Selling a booming stock seems counterintuitive. After all, if it's still going up, why would you sell? When (and if) you reach that sought-after target price, it's time to reevaluate whether you should sell the stock. If the target price makes sense, it makes sense to sell. Group mentalities might suggest that holding on a little longer could bring another $0.20 per share, but invest with your mind, not with your gut - if a price is artificially inflated, it's a lot more likely to fall hard. Trust your analysis. (For more insight, see Having A Plan: The Basis Of Success.)

It's pretty unscientific to decide how well you're doing without developing some sort of criteria for success. If you decide that you want overall gains of 15%, it makes a lot of sense to sit down and evaluate exactly how well you did. If you fell short of your goals, ask yourself why. Did you make a mistake in picking your stocks? Did the market behave unexpectedly? Were your targeted gains unrealistic? If you don't go over your trades individually and as a whole, it's quite possible to have a skewed idea of just how well you're doing.

Conclusion           

Being a young investor has its own set of challenges. If you think of your investment decisions as learning opportunities, even losses can be considered investments in your financial education. In the beginning, learning how to make money is more important than actually making it. So, to put a financial twist on an old saying, teach yourself to fish for the right stocks and you'll feed your bank account forever. 

by Jonas Elmerraji 

http://www.investopedia.com/articles/younginvestors/06/portfoliomanagement.asp

What Is Your Risk Tolerance?

It is conventional wisdom that a younger investor can take more risk than an older investor thanks to a longer time horizon. While this may be true in general, there are many other considerations that come into play. Just because you are 65 doesn't mean you should shift your investment portfolio to conservative investments. Growing life expectancies and advancing medical science mean that today's 65-year-old investor may still have a time horizon of more than 20 years.

So, how does an individual investor determine his or her risk tolerance? Let's take a look.

Read on here.