Ronald Read was a simple guy who worked as a janitor for the last 17 years of his working career. Before that, he worked as a gas station attendant and a mechanic in his native Vermont, USA. Ronald was gifted with long life and eventually passed in June 2014. He was 92.

A male homo sapiens able to live that long seems already a remarkable milestone. However, there is something that for many is still more extraordinary: uncle Ronald departed from this world leaving behind nearly $8 million in stocks. This amount seems unattainable for most mortals regardless of their profession. Yet, what makes it still more impressive is the fact that he did it on a blue-collar salary.

Let’s try to figure it out…

• Uncle Ronald started his working career after serving in Italy during the Second World War. Year was 1945 and he was 24. The average median salary in 1945 in the US was $1,100 per annum.
• Worked 52 years.
• Let’s assume that hard-working Ronald managed to receive an annual salary increase of 6% during his working career. This is more than the average.
• He committed to investing 40% of his salary the first year and increased it by 2.5% every year afterward.

After crunching all these numbers, only a whopping annualized return (or CAGR) of 15.15% could get us those $8 million. Note that we are not taking into account taxes and potential inherited assets.

Been able to get such returns consistently during half a century is just a dream for many but, is there anything we can do to emulate the janitor? Needless to say that Mr. Read was a highly talented stock picker and lived during the years were his country raised to become the biggest superpower in the history of mankind, however, there are still a few things uncle Ronald did that any of us could apply.

The Janitor’s plan

Invest early

The power of compounding is better appreciated if you start investing early in your life. In the following examples we have assumed that both individuals enjoy a CAGR of 7% and stop investing only when they retire at age 65. Over the term they consistently invest $1,000 a month. You can clearly observe how the gap between the contributions and investment value grows the longer the we stay investing.

Starting at 35 you will be able to accumulate $1,133,529.44

Starting at 25 you will be able to accumulate $2,395,621.34

Pay yourself first

As soon as you get your salary or any other income source, invest a portion or put it aside in a savings account. This will work better if you commit to investing the same amount every month. Spend the remainder if you have to.

Invest with dollar cost averaging and rebalance

Dollar cost averaging is a blessing and fits very well with the previous point. It consists of investing a smaller sum across a given timeframe periodically as opposed to investing a bigger lump sum at once. DCA will give you peace of mind by protecting you from volatility. The financial benefits are debatable but the psychological is beyond doubt.

Rebalancing your portfolio is key and will allow you to buy the dip! You need to think of your portfolio as buckets of water and try to maintain the same water level across them. This is possible by buying more of an asset that has depreciated in value and potentially selling some assets that have appreciated too much. The allocation or weight of these assets does not need to be equal among them.

Track your expenses

There are hundreds of applications that can help with this and many are free. By budgeting and keeping track of your monthly expenses, you will get a full grasp of your finances and act accordingly if your expenditure gets out of hand. Ultimately, you will find yourself spending less.

Stick to your plan

Consistency is everything in life. It is as paramount for a happy marriage as it is for achieving your financial goals. When the S&P 500 dropped 31% in March 2020 many investors sold out of fear (yeah, that’s why it dropped).

Good hodlers will stick to their buy&hold strategy and be excited about the opportunity to buy the market at a cheaper price. Needless to say that the S&P500 has recovered almost 70% since March. Markets like marriages, reward consistency.

Live below your means

Be careful with your expenses. Easier said than done, especially when society and the media sell us the idea that purchasing the newest and best will make us happy. Far from reality, studies show no correlation between owning stuff and achieving happiness in life since happiness is based merely on expectations.

Wealthy-minded people buy appreciating assets, things that produce more income and increase their net-worth. On the contrary, the vast majority of us follow trends and get mesmerized by shiny stupid things that we actually don’t need.

A useful mental hack when buying depreciating assets such as gadgets is to think of it as opportunity cost. See for example the different ways our imaginary friend Albert could approach a mobile phone purchase.

Albert “the Snobbish”

• Albert wants to buy the newest iPhone 12 Pro (very shiny) with a price tag of S$1,969
• He enjoys the phone for over 3 years
• Since Albert is very responsible he will most certainly sell it on Carousell for S$800 at the end of the 3 years (20% annual depreciation)
• At the end Albert is left with S$800

Albert “the Frugal”

• Albert takes those $1,969 and invests it in an S&P500 ETF
• Historical data shows an annual return adjusted for inflation of 7% on the S&P500
• At the end of the 3 years, Albert has S$2,412

Albert “the Wise”

• Albert still needs a phone
• He does his research and comes to the conclusion that the Pro version is overkill.
• He wisely decides to buy a lighter version iPhone 12 for S$1,369 instead
• The S$600 he saves goes to the S&P500 ETF
• Historical data shows an annual return adjusted for inflation of 7%
• At the end of the 3 years, his investment will be worth S$735
• He enjoys the phone for over 3 years
• Since Albert is very responsible he will most certainly sell it on Carousel for S$550 at the of the 3 years (20% annual depreciation)
• At the end, Albert has S$1,285 (S$735 + S$550)

If you aim to be like Ronald Read and appear in Wikipedia as a philanthropist, you’d better not buy the most expensive gadget on the market all the time. Mind you, when it comes to smartphones, that’s every year!

Do your homework

Most of the stock that Ronald bought over his life ended up yielding high profits for him. Lucky? Don’t think so… Our janitor never stopped bettering his knowledge.

He read countless books about value investing that largely helped his decision-making. He mostly invested in blue chips and businesses he understood, mostly energy and finance. These are traditional companies that pay dividends such as the ones in the STI Index. Although many may have reservations about this strategy in the current days, where the most rewarded stocks are technology companies, investing in solid profitable businesses hardly goes wrong.

Nonetheless, the bottom line is that he did his research before picking any stock. He didn’t invest his money blindly, so neither should you.

Do not have kids

This one is the most controversial of all and it goes against our very existence. After all, we are able to thrive due to our ability to procreate. Even so, children in first worlds countries are proven to be more like a liability in financial terms. For instance, this article estimates that raising a child in Singapore costs at least S$670,000.

On the other hand, in many cultures like Asia, children will financially support their parents when they retire, especially in countries where the welfare and pension system are precarious. Would that break-even? Not sure…

But taking into account that starting an investment plan is something one has to do as early as possible, at least we have to be very careful in choosing the timing.

Disclaimer: Ronald Read had 2 stepchildren and it is known that he financed their education. In any case, I just wanted to make a point. I do understand that having kids is a very personal matter and the joy they bring into someone’s life is unquantifiable. Wait, do they?

Conclusions

I wouldn’t want to wrap up without mentioning that Ronald Read left most of his estate to the hospital that attended him during his last days and his hometown library, the place where he acquired most of his financial knowledge. He left this world making an impact on the lives of the visitors of these places and for that, they will always be thankful.

Thank you for reading. Now maybe you will think twice next time you run into a janitor in the mall toilet.