Ronald Read was an extraordinary Veteran. He served with honor during World War II with assignments in North Africa, Italy, and the Pacific. But, it was not his military service that made him extraordinary.
After the war, Read worked at a gas station for 25 years and eventually became a janitor at JCPenny. Like the average American, Ronald Read was married and had two children. Obviously, this was nothing extraordinary.
What made Ronald Read extraordinary was that even though he was a married father with an entry-level job, the high school graduate amassed over $8 million of wealth by the time he died at the age of 92.
On the outside, one would think Read was an everyday person when he was actually what Chris Hogan would call an Everyday Millionaire. So how did a Soldier turned janitor do it?
1. Live Below Your Means
I don’t know how many times I have read this in a book, read it on some blog, or heard it said, but live below your means. It seems like this is common sense, but you know how it is, common sense isn’t too common.
So what does “living below your means” mean? Well, let’s suppose you receive $2,000 each month. Living below your means would imply you spend no more than $1,999.
Ideally, I would hope you don’t spend that much of your paycheck. Instead, I would hope you invest some of it. But, we will get to that investing topic later on.
For the case of Ronald Read, our everyday millionaire lived far below his means. His car was nothing impressive. Just a used Toyota Yaris. If you don’t know what that is, it looks like Toyota’s attempt at a Smart Car. If there were parking meters around, Read would park further out to avoid paying to park.
Mr. Read would also wear humble clothing. Friends of his recalled the safety pins he would use to repair the damaged clothes. On one occasion, someone paid for his breakfast because they thought he was too poor to afford it. Ironic right?
Speaking of eating out, Read would have breakfast every day at the local hospital. Just a coffee and an English muffin. Even into his 90’s, Read would cut his own firewood.
This all amounted to Ronald Read’s definition of living under your means.
2. Invest Wisely
At the time of his death, the vast majority of Ronald Read’s wealth was within the stock market. It sure didn’t come from his salary for cleaning up after customers.
I hear it all the time, “I can’t invest because I don’t know what stock to buy.” Ronald Read only had a high school education, which may have made him a perfect investor. Why do I say this? Because he did not have any fancy investment strategies.
Instead of following the hip trends of investing that the media loved to push, Mr. Read only purchased stocks for companies that were household names. At the time of his death, he held stocks for 95 companies. He did not have any of the cool and highly volatile techy stocks, just the boring old safe stocks.
When Read bought a stock, he bought it for the long haul. There are many trading and investing strategies which have different lengths of time for how long you should hold a stock. But, if you are investing for 40 years from now, why would you want to buy on hype and sell on fear?
Read avoided this by choosing not to buy and sell on a regular basis. It was noted that some of his stock holdings were decades old.
Additionally, Read diversified his holdings. Have you ever heard of not putting all of your eggs in one basket? That is diversifying. Read not only divided his money up in over 95 companies, but he divided his money up into different types of companies. He did not focus all in banks, or cars, or food. He chose to invest in a little bit of each sector.
If you are investing with TSP, great. You are already highly diversified with their C, S, and I funds. The Lifecycle funds are diversified as well since they are a combination of these funds.
For those of you investing in an Individual Retirement Account, called IRA, or regular brokerage account, you can easily obtain diversification by purchasing mutual funds and Exchange Traded Funds, commonly called ETFs. There are numerous funds out there so do some research and find the ones that fit your needs.
3. Reinvest Dividends
Another interesting discovery about his stock choices was that they all paid dividends. A dividend is a payment from the company to the owner of the stock. For example, you own one share of ABC Corp and they pay $1 per share every quarter to the owner of the stock you would get that cash flow.
Instead of receiving the dividend payments as a cash flow to him, Read opted to have the dividends reinvested. This means every quarter when the company paid him a dividend, they paid him with more shares of the company instead of cash.
Why was this critical? Reinvesting the dividends allows you to gain interest even faster as you now own more of a company. So if you owned 100 shares in a company and they had a 1% dividend, you would now own 101.
It doesn’t seem like much now, but as you will see in the next section that it will add up over time.
Are you investing with TSP? Don’t worry, the dividends are already reinvested for you. If you are investing with an IRA or a regular brokerage account, you can have them reinvest your dividends for you. This should be free of charge. If you need help with this, contact your broker to get it set up.
4. Start Investing Early
If you haven’t figured it out by now, Read did not become a millionaire overnight. Slow and steady must have been his motto.
Compounding interest is a powerful tool for wealth building. It works like this, suppose you invest $100 at 10%. At the end of the year, you have $110, the original $100 and the earned interest of $10. After the second year, you will have $121.
Were you expecting me to say $120? What happened? Well, you still have your $100, and on the second year, it will again bring you $10. And that $10 interest from year 1 will still be there, and it will earn you $1 in interest.
So in short, compounding interest is interest earning interest. The longer you have to do this, the more money you will make.
Let’s take an example to see you can have $8 million. Suppose you join the military at the age of 18, fresh out of high school. Because you now have a paying job, you can start investing in retirement. So you decide to put away $450 each month.
Why $450 a month? Because you can only invest $5,500 a year in an IRA, and $450 a month will just about get you there. If you don’t have or don’t understand IRAs, just think TSP instead. Also, even the lowest ranking person can afford $450 a month. If you have a military income and say you can’t afford $450 a month, you probably aren’t trying.
The next assumption is that we will receive a 12% rate of return. Why 12%, because it is the average of the S&P500 index for the last 90 years or so. If you invest 100% of your TSP into the C Fund, you are investing 100% in the S&P 500 Index.
Please don’t think that is my recommendation of how to invest with TSP, I don’t even invest that way. Invest in a manner that fits your needs. I just wanted to point out to the naysayers about earning a 12% average is actually possible.
Where were we? Oh yes, so an 18 year old investing $450 a month in a diversified index fund. Just punching this into a calculator here for you, but after 520 months you would have just shy of your $8 million.
So at the age of 61, you would have $8 million. Guess how much you gave up to get $8 million, that’s right, only $234,000. Don’t believe me, just multiply $450 by 520 months. If you were putting your money into TSP or an IRA, an amazing thing is happening at this point. You are old enough to withdraw your money without any penalties.
But wait, there’s more! Let’s add in one more assumption, our young Soldier who was so wise to start investing right away did so in with Roth TSP or a Roth IRA. What is so great about Roth? Our Soldier paid income tax on $234,000 over the course of 43 years. Now the Soldier has $8 million and owes NOTHING in income tax.
That’s right, you can become a tax-free multi-millionaire by taking advantage of the programs that everyone has access to.
But, this amazing growth of money only happens with compounding interest. And the sooner you start, the sooner you get to your first million.
Are you 38 instead of 18? No problem, you can still start investing today.
5. Always Learning
Like Ronald Read, I believe in lifelong learning. Read demonstrated this by reading the newspaper every day. His favorite? The Wall Street Journal.
In addition to the Wall Street Journal, Read would frequent the local library. Maybe his frugal life enjoyed the free books, but the books contain sage wisdom from people smarter than you and me.
With Tuition Assistance and your GI Bill, you have no reason to not take advantage of a college education while still serving. Continue learning what you want to learn.
5 Essential Books to Enhance Your Financial Literacy
What Happened to the Inheritance
In short, he gave most of it away. The hospital that he would eat breakfast at daily received over $4.8 million. The library that gave him access to free books received $1.2 million.
This is a great video for summing up Ronald Read and his donations.
Everyone has the means to become a millionaire. Ronald Read had no advantages in life. He served his country during a time of war and then was employed as a gas station attendant and a janitor. He had no special education and was the first in his family to graduate high school.
What Read did have was an understanding of spending less money than he made. This was his first step in becoming a multi-millionaire.
His second step was to invest the left-over money. Read did not act foolishly with his investments. He bought companies that he knew and believed in their products and services. He was not influenced by shifts in the market. He understood that buying for retirement is a buy and hold strategy.
Start investing now. Invest in a fund that follows a major index for an easy way of reproducing what Ronald Read did. TSP makes this easy with its funds.
The one thing I would have done differently than Ronald Read would be to live the life you want. There comes a time when you reach a certain number that you just don’t need to be as frugal. Instead, live a little. Buy that one thing you always wanted, go to the one place you always wanted to visit.
But then again, maybe Read was living the life he wanted. He did leave most of his estate to the hospital he ate at daily and to the library where he enjoyed free books