Three factors are more important than your income to leverage your portfolio – 08/31/2023 – From Grão to Grão

In the book Financial Psychology, author Morgan Housel tells the story of Ronald Read. He was an American cleaner and gas station attendant who, when he died in 2014, left a fortune of US$ 8 million. Housel comments that in the same year, 2014, almost 3 million Americans died, but only 4 thousand left fortunes of more than US$ 8 million. The question that remains is: what made a janitor among the 2% richest Americans who died that year?

I’m sure there will be someone commenting that this is only possible because it was in the USA and that in Brazil it would not be possible.

I have to disagree with you who thought this way.

Yes, it is possible. Definitely not likely. Just as an American janitor was unlikely to achieve this feat either.

Do you know the average salary of a janitor in the US?
a) US$ 10.5 thousand/month
b) US$ 8.5 thousand/month
c) US$ 5.5 thousand/month
d) US$ 2.5 thousand/month

How much do you think the average Brazilian who earns R$50,000 a month saves?

Usually, we believe that only those who earn fortunes manage to save. Yes, these should have much more savings capacity. But believe me, few do.

I’ve known workers who earned R$ 10,000 a month and had assets of a few million. I also had contact with several people who earned R$50,000 and could not exceed R$200,000 in investments.

According to research on the internet, an American janitor earns an average of US$ 15/hour. Assuming he works 8 hours a day, 21 days a month, his income would be $2500 a month.

It’s no use saying that in Reais this is worth more. Anyone with that income in the US also feels disadvantaged in saving.

Only three factors separate you from becoming a millionaire like Ronald Read: time, savings and knowing where to invest.

Read lived to be 92 years old, that is, it was a lot of time to save. Assuming he started working at age 22, but it was probably earlier, he left the money going for at least 70 years.

Investment timing is crucial in the magic of compound interest.

Knowing how to cut costs and save a greater proportion of the portfolio is the second most relevant factor.

Finally, know where to apply. Here in Brazil, we have an advantage. Interest rates are high. It makes everything simpler.

How could Ronald Read have done in Brazil?

If he earned R$ 2,500, it would be enough to save R$ 660.00 per month, or 26.4% of his income. Let’s keep the 70-year term and consider that it only applies to fixed income with a return of IPCA+6% per year, for example, in CDBs.

After that period, he would have R$ 8 million at today’s values, that is, corrected for inflation.

Do you think you can’t save R$660.00 a month or you don’t want to make the necessary effort?

A reasonable savings effort will be required. It will take a lot of patience and discipline. But, you can also be a Ronald Read in Brazil and be among the richest 2%, even earning less than these richest and without taking too much risk.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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