The markets are closed today for Presidents Day.
Coincidentally, I just got back from a week at my mother’s house in the Rappahannock River region of Virginia. It’s just miles from where Mary Ball Washington, the mother of our founding father, was born.
When he died at 67 in 1799, George Washington’s estate was worth approximately $780,000. That’s a tidy sum, even today. But at the time, it was the equivalent of about 0.15% of the national gross domestic product. If you adjust to today’s figures, it would be around $500 million.
But how exactly did he make that fortune? Let’s take a close look. Because there are some good lessons here for all of us…
3 Steps to Lasting Wealth
Let’s put aside the fact that Washington made the very wise decision to marry rich. (I’m not going to suggest you do that.)
George Washington — in addition to being our first president — was an entrepreneur, farmer, brewer and more. Here were his greatest wealth-building secrets:
- Avoid debt. Ol’ George learned this the hard way, after struggles with debt in his early years. According to Washington: “Avoid occasions of expense … and avoid likewise the accumulation of debt not only by shunning occasions of expense but by vigorous exertions to discharge the debts, not throwing upon posterity the burden which we ourselves ought to bear.” In other words, live within your means, and don’t leave it to your heirs.
The key to a fulfilling retirement is to manage your cash flow. High credit card balances and unnecessary borrowing pose a huge risk to your financial security. Take Washington’s advice, and don’t get in over your head.
Of course, it wasn’t just personal debt he hated. In his farewell address, Washington warned about the dangers of debt to the American people … a situation that has spiraled out of control in modern times. To see how to protect yourself from that, go here.
- Real estate. When he was elected, George Washington was one of the largest landowners in the country. By the time he died, he owned 52,000 acres. It was a great source of wealth for him and his descendants.
Today, it’s easier than ever to become a “landowner.” Not in the traditional sense, of course … but with the click of a few buttons by investing in real estate investment trusts (REITs).
REITs are specialized companies that invest in real estate of all kinds — from residential to industrial to scientific. They trade just like stocks. And because U.S. tax law requires them to distribute 90% of their taxable profits as dividends, they typically return much higher yields than industrial and other companies. And REITs have tripled the average returns of the S&P 500 Index every year for nearly 25 years.
One easy way to invest in this market is with the Pacer Benchmark Data & Infrastructure Real Estate Sector ETF (NYSE: SRVR).
- Diversify. While most plantations just grew tobacco, Washington branched out and started growing wheat and other crops. Not only that, but he didn’t just invest in real estate, he also had a portfolio of stocks and bonds.
Diversification is crucial for any investor. Consider offshore opportunities with the iShares MSCI Emerging Markets ETF (NYSE: EEM). And make sure you’ve allocated at least 5% of your portfolio to gold, either via exchange-traded funds (ETFs) like the SPDR Gold Shares ETF (NYSE: GLD) or by owning the metal itself.
Bottom line: Don’t put all your eggs in one basket.
So remember: Avoid debt, consider investing in REITs and diversify. You may not end up with a $500 million fortune like George Washington. But it should help you achieve financial independence.
Enjoy your Presidents Day.
Kind regards,
Editor, The Bauman Letter
