When I contemplate the most significant figures of American history, I am often struck by how much the background of economic prosperity enabled and facilitated their life work to come. Benjamin Franklin found economic success in selling his Poor Richard’s Almanack as the first self help book aimed at the poor and middle class. As Benjamin Franklin’s hero, the great Samuel Johnson, once said of the absence of money: “It certainly destroys liberty, and it makes some virtues impracticable and others extremely difficult.” If Poor Richard’s Almanack did not sell, Benjamin Franklin may have never invented bifocals, the Franklin rod, contributed to scientific research with his lightning rod experimentation, founded Philadelphia’s fire department or even the University of Philadelphia.
I was thinking about the Miller Center of UVA’s article “John F. Kennedy: Life Before The Presidency” that indicated the teenaged John F. Kennedy grew up so privileged that he had no idea that the Great Depression was occurring while he was living through it: “Though the ensuing Great Depression gripped the nation, ‘Jack’ and his eight siblings enjoyed a privileged childhood of elite private schools, sailboats, servants, and summer homes. Kennedy later claimed that his only experience of the Great Depression came from what he read in books while attending Harvard University.” The background of wealth enabled JFK to go to Harvard, publish scholarship research such as “Why England Slept”, command PT Boats during WWII that resulted in a Navy and Marine Corps Medal, write Profiles in Courage, ascend to the Presidency, have the courage to reject the suggested false flag attack in Operation Northwoods that would have killed Americans as a guise to build public support for a war against Cuba, give one of the greatest motivational inaugural addressed in history, and establish the Peace Corps.
To me, the basic self-interest of investing, building businesses, and delaying gratification is that you are engaging in an effort to structure your affairs so that you can provide for your family during a severe economic catastrophe. This end game need not include servants and sailboats, but the aim should involve no disruption in your child’s education and access to resources that you deem desirable, on account of your economic situation.
So how do you end up there?
There are two initial options. The first is that you can acquire a specialized skill so that you can receive meaningful compensation for your labor, live below your means, acquire a surplus, and then use the surplus to invest in cash-producing assets that produce in all conditions, such as U.S. Treasury bonds, high-grade corporate debt, cereal stocks, beverage stocks, healthcare stocks, consumer staple stocks, and real estate, be it directly or through real estate investment trusts.
The second option is that you launch a business that has the net effect as that of a specialized skill, with your initial efforts aimed at launching a cash-generating asset in a recession-resistant industry that be the platform that funds a lifetime of diversification efforts.
If your family lived in New York during the Panic of 1893, yet sat on a block of Bank of New York shares, you would have received dividend income to put food on the table. If your family lived in Arkansas during the Great Depression, yet sat on a block of Coca-Cola shares, you would have received stable quarterly dividends that grew by 8% each year, enabling your family to not only survive but prosper during the terrible calamity. If your family owned a block of Johnson & Johnson stock during the recession of 1973-1974, those JNJ dividend checks that arrived in the mail could have paid your children’s college tuition. If you owned a chunk of Colgate-Pamolive stock during the financial crisis of 2008-2009, you would have received an ever-growing payout stream that would have paid the mortgage.
And there are hundreds of thousands of different permutations.
It is terrifying to see data points that suggest that Americans have savings rates of under 10%, and in some years, negative savings rate (implying that credit card or other debt is accumulating). The end-game should be trying to ensure that you, and if applicable, your spouse and children are put into a position where they can draw out upon the best of themselves, as independent of overall economic conditions as your personal circumstances allow. To the extent that you cannot arrange your family’s affairs as you believe best, which could have been achieved by action of foresight, you have failed. If you find yourself in such a situation, internalize the lesson, apologize to those who are adversely affected, and work your rear off to remedy it.
Originally posted 2018-11-21 01:20:03.