41% of the S&P 500's total return from 1926-2006 came from reinvested dividends. Without dividends, $10,000 grew to $1 million. With dividends reinvested, it grew to $24 million.
The Lesson: When you invest in dividend-paying stocks, always opt for DRIP (Dividend Reinvestment Plans). Treat dividends not as income to spend, but as employees that go out to recruit more workers (shares) for your wealth-building army.
Compounding is not a linear process; it's exponential. The most dramatic gains occur in the later years.
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.
Be like Grace
The five lessons listed above helped an amateur investor turn $180 into $7 million. Who knows where they might lead you?
The story of Grace Groner is one of the most elegant and powerful testaments to the quiet, patient power of investing. It's not a story of genius, but of profound simplicity and discipline. Let's elaborate and extract the timeless lessons.
The Expansion: The Anatomy of a $7 Million Secret
Grace Groner's story is captivating precisely because of its modesty. The administrators at Lake Forest College knew a woman who lived humbly in a small, one-bedroom house. They had no idea she was a multimillionaire. The magic lies in how she transformed $180 into $7 million without a high-powered job, without complex trading strategies, and without any visible signs of wealth.
Her entire strategy can be visualized as a simple, five-step virtuous cycle that fueled its own growth for 75 years:
The visual above shows how these principles are not isolated steps, but interconnected forces that work together. Patience and reinvestment form the core engine that is fueled by a modest lifestyle and a simple, quality investment.
The Elaboration: Breaking Down the Five Principles
1. Buy Stocks (But Think Like a Business Owner)
The Action: Groner didn't "play the market." She bought a small piece of a real, thriving business she knew well—Abbott Labs, her employer.
The "Why": As the data shows, stocks are the greatest wealth-creating vehicle in history. A single dollar invested in stocks in 1802 would have grown to over $755,000 by 2006, dwarfing bonds, gold, and cash. Stocks represent ownership in enterprises that can grow, innovate, and profit for decades.
The Lesson: You aren't buying a ticker symbol; you are buying a share of a company's future profits. Adopt the mindset of a business owner, not a gambler.
2. Respect Your Circle of Competence
The Action: She invested in what she knew. As an Abbott Labs employee, she had a front-row seat to the company's culture, stability, and products.
The "Why": This principle, famously championed by Warren Buffett, protects you from fads and complex businesses you don't understand. It's easier to evaluate the long-term potential of a company whose business model is clear to you.
The Lesson: Your professional and personal life gives you expertise. A teacher might understand educational software, a mechanic might understand auto parts companies. Start your investment research within your own circle of knowledge.
3. Be Patient (The 75-Year Virtue)
The Action: Groner bought her three shares in 1935 and never sold them. She held through World War II, the Cold War, multiple recessions, and countless market crashes.
The "Why": Compounding is not a linear process; it's exponential. The most dramatic gains occur in the later years. The table in the article shows how $10,000 could grow over 30 years in great companies:
PepsiCo: $1.1 Million
ExxonMobil: $740,000
3M: $357,000
The Lesson: The greatest barrier to wealth is not a lack of clever strategies, but a lack of patience. Time in the market is infinitely more important than timing the market. Sell a company if its fundamental promise is broken, not because the market is having a bad day.
4. Don't Be Afraid to Start Small
The Action: Her initial investment was just $180 (about $3,000 in today's dollars). She proved you don't need a fortune to start building one.
The "Why": Every great oak was once a tiny acorn. A small, disciplined start is far more powerful than a large, one-time investment that never happens because you're "waiting until you have enough money."
The Lesson: The best time to plant a tree was 20 years ago. The second-best time is now. Start with whatever you can, even if it feels insignificant. Consistency trumps size.
5. Reinvest Those Dividends (The Secret Engine)
The Action: This is perhaps the most critical lesson. Groner did not spend her dividend checks. She automatically used them to buy more shares of Abbott stock.
The "Why": This is the rocket fuel of compounding. Those new shares would then themselves pay dividends, which would buy even more shares. This creates a self-perpetuating, accelerating cycle of growth. The stunning statistic from the article bears repeating: 41% of the S&P 500's total return from 1926-2006 came from reinvested dividends. Without dividends, $10,000 grew to $1 million. With dividends reinvested, it grew to $24 million.
The Lesson: When you invest in dividend-paying stocks, always opt for DRIP (Dividend Reinvestment Plans). Treat dividends not as income to spend, but as employees that go out to recruit more workers (shares) for your wealth-building army.
The Lessons We Can Learn: "Be Like Grace"
Grace Groner's life offers a philosophical blueprint for investing and living.
Wealth is Often Invisible: True wealth isn't about flashy cars or big houses. It's about financial independence and security. Groner chose a life of simplicity, which allowed 100% of her investment returns to keep working for her. Her story frees us from the pressure of "lifestyle inflation."
Simplicity is Sophisticated: In a world of complex financial products, day trading, and crypto-mania, Groner's strategy was breathtakingly simple: Buy a great company, reinvest the dividends, and hold forever. This is a strategy anyone can understand and implement.
Your Legacy is Defined by Your Giving: Groner didn't hoard her wealth. She left it to her alma mater, transforming the lives of countless students. This mirrors the stories of Anne Scheiber and Warren Buffett. It teaches us that the ultimate purpose of wealth is not just personal security, but the ability to make a profound positive impact on the world.
Final Summary:
Grace Groner proved that you don't need a high income, expert knowledge, or luck to build extraordinary wealth. You need a simple, disciplined strategy applied with immense patience. Her $7 million was not the result of a single brilliant decision in 1935, but the result of a quiet, steadfast commitment to doing the right things—and, most importantly, not doing the wrong things like selling, speculating, or spending her dividends—for three-quarters of a century. Her legacy is a powerful reminder that the most reliable path to wealth is open to everyone.
