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