How a Regular Savings Habit Made T. Johnson $70 million

*photo courtesy of https://www.flickr.com/photos/68751915@N05/
*photo courtesy of https://www.flickr.com/photos/68751915@N05/

 

The story of Theodore Johnson has become the stuff of legend. How a man who never made more than $14,000 per year came to be worth $70 million dollars naturally got a lot of peoples attention. He did it simply by saving. He treated his saving as an obligation just like paying taxes or buying food. Money came out of his paycheck and was put away as if he had no other option. It is the concept financial planners refer to as “paying yourself first”, and his method is something that the average person should be able to easily duplicate, if someone would just explain in simple terms how it is done. That’s what I hope to do for anyone interested.[Tweet “How a man who never made more than $14K per year, came to be worth $70 Million”]

In my recent post “Getting Rich is Actually Easy“, I had a response from a commenter that said, “I dont think that to have an interest of 8.5% is that easy, not at all.” I’d like to thank them for pointing this out. An interest rate of 8.5% would be difficult, if not impossible to find. The confusion comes from the use of the term “compounding interest.” Money invested well compounds, but it doesn’t necessarily come in the form of interest. It may come in other forms, such as dividends or capital gains.

When we use terms like capital gains, some people assume, wrongly, that this is where it gets complicated. When they hear someone talk about the stock market, they think it’s dangerous, risky, complex and beyond the reach of the average worker. Again, this is wrong. If you have a computer, you likely have easy access to stock market investing, and if you understand some fundamentals, you can invest with low risk, and easy self-management of your investments.

The next article in this series, “Understanding Investing for Wealth Is Easy”, goes on to explain one method I use for investing in the stock market that allows me to sleep easily at night and make returns that compound at much higher rates than any saving account is likely to offer.

In the following two posts, I give my humble effort at explaining how I go about this..

Understanding Investing for Wealth Is Easy: Part 1

Understanding Investing for Wealth Is Easy: Part 2

3 comments:

  1. I agree with your sentiments but must point out that the argument about Mr. Johnson getting rich by judicious saving on $14K fails to mention the time in which it happened. Here’s a cut and paste from a NYT article about him:

    “Mr. Johnson, who was reared in a middle-class family, worked his way up at U.P.S. to vice president for industrial relations by the time he retired in 1952. His annual salary was $14,000 then, but he had bought as much of the company’s stock as he could and had about $700,000 when he retired.

    While enjoying his retirement, he watched the company grow — and the value of his stock holdings with it.

    “I was very lucky,” said Mr. Johnson, whose own college education was helped by Federal money he received as a World War I veteran. Gratitude to His Company”

    $14K annual salary in pre-1952 was a heck of a lot of money. Now I’m sure there were other people in that era who earned similar salaries and never built the wealth he did. He also was lucky he worked for and invested in a solid company. Had he been an Enron-type employee the story would have been much different.

    But it’s important to understand that there’s a minimum income which is necessary to support even a very modest living. If you don’t earn above that minimum amount it is very hard to build wealth. With a decline in availability of middle class jobs and heavy student debt for education (I’m in the U.S.) it is increasingly a challenge for young people to build wealth.

    1. Hi,
      Thanks for the reply! Yes, I’ve read this article previously, as well as others. Tony Robbins just referred to Mr Johnson in his video on Big Think (promoting his new book) as well. Mr Johnson did in fact retire in 1952 at which point his investments where apparently worth $700,000. Still not bad, but by the time he reached 90 it was approximately $70 million. Please don’t misunderstand me; if you interpret this to mean someone on $14,000 a year could afford to save this much now a days, that’s not what it was about. It was intended to encourage saving and investing. My article isn’t about fair wages, income equality, etc. It was in response to someone asking how it is possible to make an 8.5% return. This article was a lead into 2 following articles explaining how I do that. Those articles were also posted today. http://www.dirtyredhat.com/understanding-investing-for-wealth-is-easy-part-1/ & http://www.dirtyredhat.com/understanding-investing-for-wealth-is-easy-part-2/
      Thanks again and all the best!

      1. I very much enjoyed your articles on investing and get how the illustration was to point out the necessity of regular saving. If you can’t manage to save then investing becomes impossible. I also appreciate your thoughtful explanation of investing as opposed to the get rich quick schemes of trading. I’ve been avoiding the stock market for quite a while now but your article was a good reminder that long term investing in solid companies can be a good way to earn a solid return. I might venture back in after the next crash.

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