05 June 2018

    Secretary quietly amasses US $9million: how she did it

    So what’s her secret?

    Ashley Gardyne

    Chief Investment Officer

    Ashley Gardyne

    Chief Investment Officer

    I read a fascinating story in the New York Times this month that I wanted to share, so I'm taking a detour from my usual commentary on our international investments.

    The article reported that a New York charity for disadvantaged children got a big surprise recently, receiving an unexpected $9 million (US$6m) donation — the largest gift in its century-long history. Even more surprising was that it wasn't from a billionaire business owner, philanthropist or hedge fund manager, but from the estate of legal secretary Sylvia Bloom. Bloom's fortune wasn't a result of an inheritance or lottery winnings, she had amassed a significant fortune through a lifelong savings and investment habit.

    Stories like this are not only good attention grabbers, but they are great reminders of the incredible power of compounding. By saving regularly your balance starts to grow steadily, initially mainly through your monthly contributions, but also through investment returns. You then start to earn returns not only on your contributions, but also on your reinvested returns. This compounding effect becomes more and more apparent through time, and you may eventually start to earn more from investment returns than your regular contributions. This way, a small amount saved regularly can really snowball into a significant portfolio with time.

    But how much did Bloom have to save each month? Would it have resulted in her having an overly frugal existence? After all, there is no point saving a fortune and never getting to enjoy it.

    Well, I trawled through historical data and ran some numbers. I estimated that Bloom would have needed to save about US$70 a week (in today's dollars) from age 18 to 65, and then simply let it compound through her retirement to have ultimately amassed US$9m (she passed away in 96). While certainly no trivial savings contribution, it is amazing that just $10 a day can snowball up to such a large sum.

    Sylvia Bloom isn't the only story like this. There was a janitor in Vermont called Ronald Read who died in 2014, leaving US$8m to charity at age 92. Grace Goner from Illinois left US$7m to charity when she died in 2010; and shopkeeper, Leonard Gigowski, from Wisconsin left $15m to fund academic scholarships when he passed away in 2015.

    The point here is that it is easy not to fully comprehend the power that compounding can have on your savings through time — if you simply set the snowball rolling downhill and don't get in its way.

    Now while these good news stories have been great for a number of charities — I'm not suggesting we should all aim to die with $9m in the bank! You'd be better off having a blast in retirement with your family and friends. But I guess it would be great to have the choice!

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