Lesson long-term investments by Benjamin Franklin
Get Rich / / December 20, 2019
As Ben Franklin made his fortune by age 40
Benjamin Franklin was bornBenjamin Franklin - Encyclopedia Britannica in 1706, the son of an artisan, is engaged in manufacturing of candles and soap. Not that his family was very poor, but Ben was the tenth of seventeen children, and money for the education of boys was not enough. Therefore Benjamin graduated two classes and has started to work, first in his father's shop, and then the printing of his brother. For 22 years the young man knew and was able enough to take out a loan and start his own printing business.
Edition of the newspaper, Franklin began to thrive, but it is really fabulous condition he brought printing of paper money. With his friend Joseph Breyntnallom he invented the first ways to protect banknotesHow Franklin Thwarted Counterfeiters counterfeiting. This innovation allowed the partners to obtain orders for the printing of money in many colonies (in fact, they spread their technology for the franchise). The fact that the portrait of Franklin on the hundred dollar bill showing off, it is not a coincidence.
Benjamin Franklin founded the first fire department in Philadelphia, and the public library in America and the University of Pennsylvania. He spent finding and charted the Gulf Stream, and also gave it its name. Franklin engaged in serious investigations of electricity, invented the lightning rod, and many other useful things.
Franklin claimedBenjamin Franklin on wealthWhen a person becomes wealthy enough, he should devote himself to the public good. So he did. For 42 years, Franklin was one of the richest men in America... and retired. After retiring from the business, the next 40 years, Benjamin spent no less fruitfulPublic Service (1753-85). In his 70 he became the US Ambassador in France and is known to be involved in the drafting of the Declaration of Independence and later the Constitution of the United States.
As an investment of the founding father grew for 200 years
In his will, Franklin left the city of Boston and Philadelphia for 1000 pounds (about 4400 dollars at the exchange rate at that time or on 122 000 dollars at the exchange rate in 2019). After his death in 1790 the money has been transferred to the trust funds that were supposed to invest it for 100 years. After this period, about 75% would be used to help young entrepreneurs and finance socially significant projects. The remaining 25% Franklin bequeathed to invest another 100 years, and then fully transferred to the city.
In 1890, when it was time to the first phase of the distribution of the funds in the trust Philadelphia turnedBen Franklin's gift that keeps on giving about 100 000 dollars (2.8 million dollars at the exchange rate in 2019), and the sum of Boston grew to 430 000 dollars (12 million dollars at the exchange rate in 2019).
One of the reasons why Philadelphia get a lower profit, was the fact that it has acted in a trust Franklin's wishes and lend money to young entrepreneurs, while Boston sought to maximize profit.
This approach kept the city in the future. As a result, over the next hundred years, the cost of Boston and Philadelphia trusts increased to 5 million and $ 2 million respectively (up 9.8 million and $ 3.9 million at current exchange rate).
What do you think, how different their average annual yield as a percentage? No, not twice. The annual profit wasThe Power of Term-Term Compounding: Evidence from Ben Franklin's Trusts 3.1% and 3.6%, Philadelphia, Boston. This example shows that, when it comes to compound interestIntuition does not work. Looking for precise calculations.
You might think that Franklin's legacy to govern the financial geniuses. But this is not the case. officials takingBen Franklin's gift that keeps on giving a huge amount of trust in the government debt coverage Philadelphia and to finance various projects of public building in Boston. Nevertheless, the amount grown in the accounts. Franklin was originally built investment scheme so that the multiplier effect of working capital growth, despite mismanagement.
As Franklin strategy works in our time
Basis Franklin strategy - long-term investments, the profits of which (interest, dividends, etc.) are also invested for the long term. You can do Bank deposit, To invest in precious metals, stocks, exchange traded funds, real estate or other assets.
Of course, the timing of Franklin's investment is much greater than the duration of a person's life. However, these mechanisms work well when it comes to how to secure a comfortable old age, or to lay the foundation of wealth of several generations.
For example, if you give money to the bank, you will be charged a monthly percentage. Under the conditions of the contract it must be stated that these funds will be added to the initial deposit amount. Thus, in the next month, you will get not only the interest on the initial investment, but also the interest on the interest.
In addition to natural growth, you can also add a small amount every month to the main contribution to significantly increase the bottom line.
Another option - it is an investment in shares. Yields of individual shares less predictable, but, for example, MICEX 10 (index blue chips on MICEX) shows relatively stable returns. In addition, the interest you will receive an annual dividend, which will be able to buy new shares. In this case the yield of the shares will be grow under the scheme of compound interest.
What will help increase your capital over the long term
- Clearly define your goal. This will help to avoid the temptation to use the money early.
- Start investing as early as possible. The sooner you make a first investment, the more impressive will profit from compound interest.
- Invest a small amount each month. look calculationsThat show the difference between one-time and permanent investments.
- Be disciplined and avoid unnecessary spending. Franklin said: "To save a penny - is like to earn." Perhaps instead of a new smartphone you choose well-being in the future?
- Be consistent. Probably not everything will go smoothly, and it is important not to panic. Usually during cyclical downturns investment portfolios only need to be adjusted, but not in the full review.
- Separate long-term investments and cash reserves. Ideally, for emergency situations (eg, loss of job), you must have a separate airbag. Otherwise there will be the temptation to spend the money invested in long-term projects, ahead of time.
Now you see that use natural inertia to move closer to their goals, everyone can. Inspired by the example of Ben Franklin, and do not forget the long-term planning!
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