Ronald Read spent the better part of his life working as a mechanic and a part-time janitor at J.C. Penney—a far cry from the highly skilled jobs that normally produce millionaires over time.
Yet, following his passing last summer, Mr. Read’s estate made its first distributions—$4.8million and $1.2 million to the Brattleboro Memorial Hospital and the Brooks Library, respectively.
Wait a second…a mechanic turned janitor donated over $5 million to charitable causes, with more money yet to be dispersed? Believe it or not, yes.
Mr. Read, an everyday service worker whose khaki denim jacket was barely held together by a safety pin (he wore it regularly), and who someone once bought breakfast because they thought he was homeless, had amassed an estate of over $8 million. But how?
Being an astute saver was a big part of his success. Mr. Read wasn’t a flashy guy—he often wore the same flannel shirt and didn’t care much for material possessions. He wouldn’t even park his car close to his attorney’s office, because it meant having to pay for parking!
Frugality made a world of difference, sure, but Mr. Read’s investment strategy was really the driving force behind his amassed estate—he was a huge fan of dividend-producing stocks.When Mr. Read’s attorney went to retrieve his estate documents from his safety deposit box, she found a “wealth” of stock certificates—worth over $8 million! When it was all said and done, Ronald Read had built a mini-empire with a safety deposit box and a dividend-stock portfolio.
Realizing the Growth Potential of a Dividend Stocks
We wouldn’t recommend your portfolio be solely concentrated in high dividend-paying stocks, like Mr. Read’s, as it also benefits to diversify into other categories to, theoretically, add some alpha and perhaps even reduce risk.
But Mr. Read’s strategy no doubt worked, and the fact that he maintained an unwavering commitment to the long-term benefits of owning equities was critical in his achieving that level of success.
How to Build an Effective Dividend Strategy
An effective dividend strategy can not only potentially generate equity-like returns over time, it can also help reduce downside volatility in the near-term and potentially the long-term as well (especially when the broader market is posting cyclical losses). Dividend stocks have historically held up better in bear markets than low-or-no dividend paying stocks, and one of the reasons is because a sizable portion of high dividend paying stocks’ return is in the form of cash (which is insulated from downturns).
The Bottom Line for The Savvy Retiree
Mr. Read’s story is a nice anecdote for investors hoping to achieve long-term success, and perhaps the most attractive aspect of his story is its simplicity. Many times investors over-think strategies and that leads to market timing or emotionally-driven decisions that ultimately hurt long-term performance. If we can learn a lesson from Mr. Read (besides the benefits of being frugal!), it’s that if we focus astutely on the long-term benefits of equity investing, we can increase our probability of achieving the result we want.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Zacks Investment Management, Inc. is not engaged in rendering legal, tax, accounting or other professional services. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney- client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.
Disclosure