Secrets of next-door millionaires

The way most Americans build wealth is no secret: Save, invest, repeat. How average people keep their wealth, though, gets a lot less attention.

It boils down to how they handle risk. It’s hard to accumulate wealth without taking some risks, but there are perils that “next-door millionaires” seem to avoid.

Next-door millionaires weren’t born into wealth. They haven’t invented killer apps or won the lottery, exercised a pile of stock options or played professional sports. They’re the majority of millionaires, and they include teachers, small business owners and professionals who accumulate wealth gradually over time. They’re often in their 50s or 60s before their net worth ticks over to seven digits.

In my latest column for the Associated Press, how to apply the secrets of next-door millionaires to your own finances.

What “secret millionaires” can teach us

Zemanta Related Posts ThumbnailThis column first appeared on DailyWorth under the headline “Lessons from secret millionaires.”

Eugenia Dodson grew up on a Minnesota farm, the daughter of poor Swedish immigrants. Her childhood poverty affected her so profoundly that even in her old age, she refused to replace a stove with only one working burner — even though by then she was worth tens of millions of dollars. Dodson, who left nearly $36 million to the University of Miami when she died in 2005 at age 100, is just one of many secretly wealthy people who live quiet, frugal lives and then leave unexpected fortunes to charity.

I’ve been collecting stories of such secret millionaires for years now. Some are men, though the women interest me more, as females usually earn less, invest more conservatively and wind up poorer in retirement. These women break that mold. Here’s what we can learn from them.

They’re not born rich

Secret millionaires can be farmers, school teachers or, in Dodson’s case, a hairdresser. Dodson eventually opened her own beauty shop after she moved to Miami in the 1920s at the urging of a high school friend, according to her attorney, Donald Kubit. She made it through the Great Depression living simply and frugally, habits she continued through her life. “I had no idea when I met her that she was a woman of such wealth,” says Kubit, who met Dodson in her nineties.

Buy and hold works

Secret millionaires are often heavily invested in stocks — the one type of investment that consistently beats inflation over time. Many favored well-known, blue-chip companies. Margaret Southern, a retired teacher of special-needs children in Greenville, S.C., preferred household names like 3M, General Foods and Heinz that paid dividends, according to a story about her in the Greenville News. Southern reportedly liked having the dividend checks to buy whatever she wanted. When Southern died at 94, she bequeathed $8.4 million to the Community Foundation of Greenville to benefit children and animals.

Let it grow

Long lives mean that even small amounts invested over time have the decades they need to grow into real wealth. (As an example, $10,000 can grow to $100,000 in 30 years with an 8 percent average annual return, which is a typical long-term gain for stocks. In 40 years, that $10,000 would grow to $200,000. In 50 years, you’d have nearly $500,000.) You can’t control how long you live, but you can take advantage of long-term compounding by starting to invest as early as you can and leaving the money alone to grow.

These secret millionaires tend to be pretty vital, too: Elinor Sauerwein of Modesto, California, painted her own house, mowed her own lawn and harvested her own fruit from atop a ladder into her nineties, according to an ABC News report. Sauerwein left $1.7 million to the Salvation Army.

Don’t live too poor

Living below your means is essential to growing wealth, but it is possible to go overboard. Helen Dyrdal of Renton, Washington lived with broken furniture and wore tattered clothes, leaving her best friend with the impression she was impoverished, according to a report. Dyrdal was actually worth more than $3 million, which she left to Seattle-area charities when she died at 91.

Eugenia Dodson, meanwhile, was desperate to find a cure for diabetes, the illness that killed her two brothers. That’s why she gave two-thirds of her fortune to the University of Miami’s Diabetes Research Institution Foundation. (A lung cancer survivor, Dodson left the other third to the university’s cancer research center.) But she wasn’t able to give money away during her lifetime, Kubit says.

“She would have been treated royally by her charitable beneficiaries,” Kubit says. “But she was always afraid that she might need the money.” If Dodson, Dyrdal and other secret millionaires had been able to address their fears about money, they may have died a bit less wealthy — but they might have been happier. The best part of money is enjoying it while you’re alive, even if you want to benefit others when you die.

Please check out my other DailyWorth columns here.


Spreading the wealth: the number of millionaires grows

More people have achieved a net worth of at least $1 million, not including their primary residences. The Spectrum Group, which keeps track of these things, said the number of millionaires climbed for the third straight year to 8.6 million in 2011 (or 7.5% of all U.S. households). The growth in millionaires follows a 27% decline in 2008. But we’re still not back to the 2007 peak of 9.2 million.

Spectrum said the ranks of all affluent investors increased in 2011:

  • Those with $100,000 or more in net worth sans primary residence reached 36.7 million from 36.2 million in 2010 (about 32% of U.S. households)
  • Those with $500,000 or more in net worth climbed to 13.8 million from 13.5 million in 2010 (about 12% of U.S. households)
  • Those with $5 million or more in net worth rose to 1.078 million from 1.061 million in 2010 (slightly less than 1% of U.S. households)
  • Those with $25 million or more in net worth grew to 107,000 from 105,000 in 2010 (slightly less than .1% of households)