MONEY The Economy

Think the Fed Should Raise Rates Quickly? Ask Sweden How That Worked Out

Raising interest rates brought the Swedish economy toward deflation Ewa Ahlin—Corbis

Some investors are impatient for the Fed to raise interest rates. They may want to be a little more patient after hearing what happened to Sweden.

If you’re a saver, or if bonds make up a sizable portion of your portfolio, chances are you’re not the biggest fan of the Federal Reserve these days.

That’s because ever since the financial crisis, the nation’s central bank has kept short-term interest rates at practically zero, meaning your savings accounts and bonds are yielding next to nothing. The Fed has also added trillions of dollars to its balance sheet by buying up longer-term bonds and other assets in an effort to lower long-term interest rates.

Thanks to some positive economic news — like the recent jobs report — lots of people (investors, not workers) think the Fed has done enough to get the economy on its feet and worry inflation could spike if monetary policy stays “loose,” as Dallas Fed President Richard Fisher recently put it.

If you want to know why the argument Fisher and other inflation hawks are pushing hasn’t carried the day, you may want to look to Sweden.

Like most developed nations, Sweden fell into a recession in the global financial crisis. But unlike its counterparts, it rebounded rather quickly. Or at least, that’s how it looked.

As Neil Irwin wrote in the Washington Post back in 2011, “unlike other countries, (Sweden) is bouncing back. Its 5.5 percent growth rate last year trounces the 2.8 percent expansion in the United States and was stronger than any other developed nation in Europe.”

Even though the Swedish economy showed few signs of inflation and still suffered from relatively high unemployment, central bankers in Stockholm worried that low interest rates over time would lead to a real estate bubble. So board members of the Riksbank, Sweden’s central bank, decided to raise interest rates (from 0.25% to eventually 2%) believing that the threat posed by asset bubbles (housing) inflated by easy money outweighed the negative side effects caused by tightening the spigot in a depressed economy.

What happened? Well…

Per Nobel Prize-winning economist Paul Krugman in the New York Times:

“Swedish unemployment stopped falling soon after the rate hikes began. Deflation took a little longer, but it eventually arrived. The rock star of the recovery has turned itself into Japan.”

And deflation is a particularly nasty sort of business. When deflation hits, the real amount of money that you owe increases since the value of that debt is now larger than it was when you incurred it.

It also takes time to wring deflation out of the economy. Indeed, Swedish prices have floated around 0% for a while now, despite the Riksbank’s inflation goal of 2%. Plus, as former Riksbank board member Lars E. O. Svensson notes, “Lower inflation than anticipated in wage negotiations leads to higher real wages than anticipated. This in turns leads to many people without safe jobs losing their jobs and becoming unemployed.” Svensson, it should be noted, opposed the rate hike.

image (8)
Sweden

Moreover, economic growth has stagnated. After growing so strongly in 2010, Sweden’s gross domestic product began expanding more slowly in recent years and contracted in the first quarter of 2014 by 0.1% thanks in large part to falling exports.

As a result, Sweden reversed policy at the end of 2011 and started to pare its interest rate. The central bank recently cut the so-called “repo” rate by half a percentage point to 0.25%, more than analysts estimated. The hope is that out-and-out deflation will be avoided.

So the next time you’re inclined to ask the heavens why rates in America are still so low, remember Sweden and the scourge of deflation. Ask yourself if you want to take the risk that your debts (think mortgage) will become even more onerous.

MONEY target date funds

Target-Date Funds Try Timing the Market

Managers of target-date retirement funds seek to boost returns with tactical moves. Will their bets blow up?

Mutual fund companies are trying to juice returns of target-date funds by giving their managers more leeway to make tactical bets on stock and bond markets, even though this could increase the volatility and risk of the widely held retirement funds.

It’s an important shift for the $651 billion sector known for its set-it-and-forget-it approach to investing. Target-date funds typically adjust their mix of holdings to become more conservative over time, according to fixed schedules known as “glide paths.”

The funds take their names from the year in which participating investors plan to retire, and they are often used as a default investment choice by employees who are automatically enrolled in their company 401(k) plans. Their assets have grown exponentially.

The funds’ goal is to reduce the risk investors take when they keep too much of their money in more volatile investments as they approach retirement, or when they follow their worst buy-high, sell-low instincts and trade too often in retirement accounts.

So a move by firms like BlackRock Inc., Fidelity Investments and others to let fund managers add their own judgment to pre-set glide paths is significant. The risk is that their bets could blow up and work against the long-term strategy—hurting workers who think their retirement accounts are locked into safe and automatic plans.

Fund sponsors say they aren’t putting core strategies in danger—many only allow a shift in the asset allocation of 5% in one direction or another—and say they actually can reduce risk by freeing managers to make obvious calls.

“Having a little leeway to adjust gives you more tools,” said Daniel Oldroyd, portfolio manager for JPMorgan Chase & Co’s SmartRetirement funds, which have had tactical management since they were introduced in 2006.

GROWING TACTICAL APPROACH

BlackRock last month introduced new target-date options, called Lifepath Dynamic, that allow managers to tinker with the glide path-led portfolios every six months based on market conditions.

Last summer, market leader Fidelity gave managers of its Pyramis Lifecycle strategies—used in the largest 401(k) plans—a similar ability to tweak the mix of assets they hold.

Now it is mulling making the same move in its more broadly held Fidelity target-fund series, said Bruce Herring, chief investment officer of Fidelity’s Global Asset Allocation division.

Legg Mason Inc says it will start selling target-date portfolios for 401(k) accounts within a few months whose allocations can be shifted by roughly a percentage point in a typical month.

EARLY BETS PAYING OFF

So far, some of the early tactical target-date plays have paid off. Those funds that gave their managers latitude on average beat 61% of their peers over five years, according to a recent study by Morningstar analyst Janet Yang. Over the same five years, funds that held their managers to strict glide paths underperformed.

But the newness of the funds means they have not been tested fully by a market downturn.

“So far it’s worked, but we don’t have a full market cycle,” Yang cautioned.

The idea of putting human judgment into target-date funds raises issues similar to the long-running debate over whether active fund managers can consistently outperform passive index products, said Brooks Herman, head of research at BrightScope, based in San Diego, which tracks retirement assets.

“It’s great if you get it right, it stings when you don’t. And, it’s really hard to get it right year after year after year,” he said.

MONEY

WATCH: U.S. Men’s Soccer Star Alejandro Bedoya on His Biggest Money Mistake

Alejandro Bedoya, midfielder for the U.S. World Cup team, talks about blowing a paycheck, investment strategies, and an important money lesson from his father.

Bedoya on his biggest money mistake:

My first paycheck, I remember, I put in the bank. And the second one…you know, in Europe everybody is always…they want to look good…and it’s probably buying one of those brand name designer things that, I remember, for that month it was like probably my whole paycheck. Buying things like that. I mean, those things are cool to have, but it’s not really important.”

Bedoya on what he’s learned from his father about money:

He’s always taught me that it’s not what you’re worth, it’s what you negotiate. That holds true in every aspect. It’s really how you handle things and how you go about what you think you deserve. I feel like that has helped me out a lot with the opportunities I’ve gotten with money and investments.”

 

 

MONEY

Young Adults Mistrust the Advisers Who Want Their Trillions

Millennial investor with stock research reports
Cultura—Alamy

Wealth management firms fight to overcome Millennials' wariness of the stock market and the financial advice industry.

Wealth management firms are trying to get millennials excited about investing and hope to win their trust — and the sizeable wealth they are expected to control in the future.

Those now 21 to 31 years old will control $9 trillion in assets by 2018, and that will continue to grow, Deloitte estimated. Millennials also stand to inherit some $36 trillion by 2061, according to Boston College’s Center on Wealth and Philanthropy.

“We have a huge generational shift in wealth coming up,” Tom Nally, TD Ameritrade Institutional’s president, told Reuters recently. “We want to make sure our advisers are ready to serve next-generation investors.”

But it could be a tough sell: Millennials tend to leave their parents’ advisers when they inherit money, and they are leery of stocks. They “are the most conservative generation since the Great Depression,” reported a January UBS Wealth Management study, which found millennials keeping 52 percent of their savings in cash, compared to 23 percent for other generations.

To be sure, millennials are trying to save for homes, pay down student loans and pay the bills that come along with young adult lifestyles. But millennials tend to be distrustful of the traditional financial planning industry, even when they have money to invest.

“They don’t want to hear a sales pitch,” said Michael Liersch, head of behavioral finance at Merrill Lynch, the brokerage unit of Bank of America. Roughly 40 percent of millennials disagreed with the statement “advisers have your best interests in mind,” according to a Wells Fargo & Co survey.

GIVING MILLENNIALS WHAT THEY WANT

To appeal to younger clients, regional brokerage Raymond James Financial is training more new college graduates to be brokers. It will “exponentially” expand its current level of 100 participants over the next three to four years, Tash Elwyn, president of Raymond James’ private client group, said in an interview.

Morgan Stanley runs investment educational programs aimed at clients’ children who may someday need help managing inheritances. It also beefed up its social-impact investing to appeal to conscientious millennials, said Doug Ketterer, head of strategy and client management for Morgan Stanley Wealth Management.

Online broker TD Ameritrade runs TD Ameritrade U, an online program that teaches college students investing strategies and how to use the brokerage’s thinkorswim trading platform. It also offers clients recommendations from LikeFolio, a youth-friendly startup that generates sample portfolios based on what’s popular on Facebook and Twitter.

“(These platforms) pique interest and expose millennials to investing,” said Nicole Sherrod, managing director of active trading at TD Ameritrade. “It goes back to the ‘invest in what you know’ concept.”

That concept may be the one that wins over millennials like Kenny Quick, a 25-year-old Tampa, Florida, advertising executive, who bolsters his workplace retirement plan by skipping the advice and buying shares of companies he knows through deep discounter Scotttrade, Inc.

“I hold stock in Chipotle,” Quick said. “I feel like I eat there all the time, so investing in them felt like the next step.”

MONEY stocks

WATCH: The Problem With Investing in Penny Stocks Like CYNK

MONEY's Pat Regnier explains what's behind the phenomenon of the stock that rose 25,000% in days, and why you should beware.

MONEY

Does Anybody Need a Money-Market Fund Anymore?

New regulations are meant to protect money market mutual funds from another 2008-like panic.

On Thursday, the Wall Street Journal reported that the Securities and Exchange Commission is expected to approve new regulations for money-market mutual funds. Remember money-market funds? Before the financial crisis, these funds were very popular places to stash money because each share was expected to maintain $1 value. Your principal would remain the same, and the fund would pay substantially higher interest rates than a bank savings account.

But these days for retail investors, money-market mutual funds are something of an afterthought.

So why is the SEC intent on regulating them now? And will tighter rules push them further into irrelevance? Here’s what you need to know:

What going on?

A money-market fund is a mutual fund that’s required by law to invest only in low-risk securities. (Don’t confuse funds with money-market accounts at FDIC-insured banks. These rules don’t affect those.)

There are different kinds of money-market funds. Some are aimed at retail investors. So-called prime institutional funds, on the other hand, are higher-yielding products used by companies and large investors to stash their cash. The big news in the proposed rules affects just the prime institutional funds.

Prime institutional funds would have to let their share price float with the market, effectively removing the $1 share price expectation.

The SEC reportedly also wants to impose restrictions preventing investors from pulling their money out of these funds during times of instability, or discouraging them from doing so by charging a withdrawal fee. It’s unclear from the reporting so far which kinds of funds this would affect.

Why is the SEC doing this?

As MONEY’s Penelope Wang wrote in 2012 when rumors of new regulations were first circulating, the financial crisis revealed serious vulnerabilities to money-market funds. When shares in a $62 billion fund fell under $1 in 2008, it triggered a run on money markets.

In order to stabilize the funds, Washington was forced to step in and offer FDIC insurance (the same insurance that protects your bank account). That insurance ran out in 2009, and now the funds are once again unprotected against another run.

The majority of the SEC believes a primary way to prevent future panics is to remind investors that money-market funds are not the same as an FDIC-insured money-market account at a bank. Before the crisis, the funds seemed like a can’t-lose proposition. The safety of a savings account with double the return? Sign me up. But as investors learned, you actually can lose.

What does it mean for you?

Not much, at least not right away. The floating rate rules only apply to prime institutional funds, which the Wall Street Journal says make up about 37% of the industry.

The change also won’t be very important until money-market funds look more attractive than they do today. Historically low interest rates from the Federal Reserve have actually made conventional savings accounts a more lucrative place to deposit money than money-market funds. The average money-market fund returns 0.01% interest according to iMoney.net. That’s slightly less than a checking account.

Investors have already responded to money funds’ poor value proposition by pulling their money out. In August of 2008, iMoney shows there was $758.3 billion invested in prime money fund assets. In March of 2014, that number had gone down to $497.3 billion.

Finally, it appears unlikely that money-market funds will ever be as desirable as they were pre-crisis. As the WSJ’s Andrew Ackerman points out, money funds previously offered high returns, $1-to-$1 security, and liquidity. Interest rates have killed the returns, and the new regulations will limit liquidity and kill the dollar-for-dollar promise.

Don’t count the lobbyists out yet

Fund companies are really, really unhappy about the SEC’s proposed regulations. They’ve been fighting the rules for years, and until there’s an official announcement, you shouldn’t be sure anything is actually going to happen.

Others are worried the new regulations, specifically redemption restrictions, might actually cause runs on the market as investors fear they could be prevented from pulling money out if things get worse.

But the SEC may have picked a perfect time to do this. With rates so low, few retail savers care much about money-market funds. That wasn’t true back when yields were richer and any new regulation of money-market funds might have been met with a hue and cry from middle-class savers. Today? Crickets.

MONEY Portfolios

For $50 You Can Push For More Female CEOs — But Is It a Good Investment?

Indra Nooyi, chairman and chief executive officer of PepsiCo.
Indra Nooyi, chairman and chief executive officer of PepsiCo. Bloomberg—Bloomberg via Getty Images

Two new products let you invest in companies led by female executives. Whether this is a good idea depends on what you hope to achieve.

On Thursday, Barclays is launching a new index and exchange-traded note (WIL) that lets retail investors buy shares — at $50 a pop — of a basket of large U.S. companies led by women, including PepsiCoPEPSICO INC. PEP 0.5436% , IBMINTERNATIONAL BUSINESS MACHINES CORP. IBM 0.0304% , and XeroxXEROX CORP. XRX 3.669% . This should be exciting news for anyone disappointed by the lack of women in top corporate roles.

After all, female CEOs still make up less than 5% of Fortune 500 chiefs and less than 17% of board members — despite earning 44% of master’s degrees in business and management.

The new ETN is not the only tool of its kind: This past June, former Bank of America executive Sallie Krawcheck opened an index fund tracking global companies with female leadership — and online brokerage Motif Investing currently offers a custom portfolio of shares in women-led companies.

The big question is whether this type of socially-conscious investing is valuable — either to investors or to the goal of increasing female corporate leadership. Is it wise to let your conscience dictate how you manage your savings? And assuming you care about gender representation in the corporate world, is there any evidence that these investments will actually lead to more diversity?

Here’s what experts and research suggest:

Getting better-than-average returns shouldn’t be your motivation. Beyond the promise of effecting social change, the Barclays and Pax indexes are marketed with the suggestion that woman-led companies tend to do better than peers. It’s true that some evidence shows businesses can benefit from female leadership, with correlations between more women in top positions and higher returns on equity, lower volatility, and market-beating returns.

But correlation isn’t causation, and other research suggests that when businesses appoint female leadership, it may be a sign that crisis is brewing — the so-called “glass cliff.” Yet another study finds that limiting your investments to socially-responsible companies comes with costs.

Taken together, the pros and cons of conscience-based investing seem generally to cancel each other out. “Our research shows socially responsible investments do no better or worse than the broader stock market,” says Morningstar fund analyst Robert Goldsborough. “Over time the ups and downs tend to even out.”

As always, fees should be a consideration. Even if the underlying companies in a fund are good investments, high fees can eat away at your returns. Krawcheck’s Pax Ellevate Global Women’s fund charges 0.99% — far more than the 0.30% fee for the Vanguard Total World Stock Index (VTWSX). Investing only in U.S. companies, the new Barclays ETN is cheaper, with 0.45% in expenses, though the comparable Vanguard S&P 500 ETF (VOO) charges only 0.05% — a difference that can add up over time:

image-29
Note: Projections based on current expenses and a $10,000 investment.

If supporting women is very important to you, you might consider investing in a broad, cheap index and using the money you saved on fees to invest directly in the best female-led companies — or you could simply donate to a non-profit supporting women’s causes.

If you still love this idea, that’s okay — just limit your exposure. There is an argument that supporting female leadership through investments could be more powerful than making a donation to a non-profit. The hope is that if enough investor cash flows to businesses led by women, “companies will take notice” and make more efforts to advance women in top positions, says Sue Meirs, Barclays COO for Equity and Funds Structured Markets Sales in the Americas. If investing in one of these indexes feels like the best way to support top-down gender diversity — and worth the cost — you could do worse than these industry-diversified offerings. “Investing as a social statement can be a fine thing,” says financial planner Sheryl Garrett, “though you don’t want to put all of your money toward a token investment.” Garrett suggests limiting your exposure to 10% of your overall portfolio.

TIME

Tinder, Women, and the Question Every Investor Should Ask

Natalia Oberti Noguera
Natalia Oberti Noguera Erica Torres

"Do you have a woman co-founder?"

In my time growing a network of women social entrepreneurs in NYC and leading Pipeline Fellowship (an angel investing bootcamp for women), I have heard of women founders bringing male employees to investor meetings in order to be taken seriously. But it hadn’t ever occurred to me that men would purposefully hide the fact that their founding team included a woman—until Tinder’s sexual harassment lawsuit broke last week.

When men approach me after a talk/keynote/panel to express interest in pitching Pipeline Fellowship’s angel investors-in-training, I ask them, “Do you have a woman co-founder?” I’m usually met with baffled looks, even though in my remarks I’m very clear that one of the criteria to apply to present at a Pipeline Fellowship Pitch Summit is for the business to be woman-led. Several men have answered along the lines of, “Actually, no, but I have a [female friend/relative] who volunteers [doing something at the C-level that sounds like a full-time job].” I usually reply, “Great! It sounds like she’s adding value and is part of the team, so, once you formalize that relationship by making her a co-founder and giving her equity, I encourage you to apply.”

Then, I spoke at Rosario Dawson’s Voto Latino Power Summit in NYC.

As I was heading into the auditorium to listen to Arianna Huffington, Rosario Dawson, and Voto Latino’s CEO Maria Teresa Kumar, I noticed a man and a woman walking toward me. The guy said, “My name’s Deyvis Rodriguez and I just wanted to let you know that I heard you speak at the pre-SXSW Latin@s in Tech event held in Austin a few months back and you asked me if I had a woman co-founder.” Deyvis went on to share that prior to our interaction, he hadn’t really thought about having or not having a woman co-founder. A few weeks after the event, a friend recommended someone who might be a good fit for his startup. That someone turned out to be the woman next to Deyvis: “Meet Leo Bojos, my co-founder at Stellar Collective.”

I was psyched. The little remix of the White House Project’s Marie Wilson’s “You can’t be what you can’t see” with the opposite of “Don’t ask, don’t tell” had worked. In that simple question—”Do you have a woman co-founder?”—men must acknowledge the lack of gender diversity on their founding teams, often for the first time.

While Justin Mateen didn’t get the #likeagirl memo, I bet there are many more Deyvis-es in our midst. Gender diversity actually adds value to a company, according to an Emory University study, which found that ventures with women co-founders were more likely to generate revenue than those with only men on the founding team.

In 2013, according to the Center for Venture Research, 23% of women-owned ventures pitched to U.S. angels, 19% of which secured capital. And only 7% of minority-owned firms pitched to U.S. angels, 13% of which received funding.

There have been many initiatives to encourage more women entrepreneurs, including seasoned angel investor Joanne Wilson’s Women Entrepreneurs Festival, Shaherose Charania’s Women 2.0 PITCH, and Natalie Madeira Cofield’s Walker’s Legacy, which was inspired by Madam C. J. Walker, the first self-made U.S. millionaire woman, who also happened to be black (disclosure: I serve on the advisory board). I launched Pipeline Fellowship to change the face of angel investing and create capital for women social entrepreneurs. Even Barbie has signed up to be an entrepreneur.

What if, in addition to getting more women to consider entrepreneurship, venture capitalists joined me in asking men pitching to them, “Do you have a woman co-founder?” (VCs, by the way, are not off the hook. Entrepreneurs, I urge you to ask them if they have a woman partner, which isn’t the same as office manager.)

And as an LGBTQ Latina who knows that 93% of businesses pitching to U.S. angels in 2013 were led by white people, I ask different versions of the question, such as “Do you have a person of color co-founder?”

Wondering where to start? Here’s a helpful resource.

 

Oberti Noguera is Founder and CEO of Pipeline Fellowship, an angel investing bootcamp for women. She holds a BA in Comparative Literature & Economics from Yale and was named to Latina.com‘s “25 Latinas Who Shine in Tech” and Business Insider‘s 2013 list of “The 30 Most Important Women in Tech under 30.”

MONEY financial independence

Financial Lessons of America’s Founding Fathers

Benjamin Franklin on hundred dollar bill
Roman Samokhin—Fotolia via AP

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation.

In theory, the founding fathers should be the ultimate financial role models. After all, they’re literally on the money. Warren Buffett might be every investor’s hero, but even he can’t count his earnings without seeing the faces of Washington, Hamilton, Franklin, and Jefferson. Even John Adams, perhaps the most neglected of the founding fathers, has been commemorated on the dollar coin.

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation. Jefferson, for example, amassed a great fortune but later squandered it and ended his life all but penniless (despite, of course, the economic advantages of being a slaveholder). But others, including Washington — a shrewd and even ruthless businessman — died very wealthy men.

Here are some of the lessons, still applicable today, that can be drawn from these historic financial lives.

Have a Back-up Plan

Alexander Hamilton may have been the greatest financial visionary in American history. After the Revolutionary War, as Washington’s Treasury Secretary, Hamilton steered the fledgling nation out of economic turmoil, ensured the U.S. could pay back its debts, established a national bank, and set the country on a healthy economic path. But it turned out that he was far better at managing the country’s finances than his own.

When Hamilton was killed in a duel with vice president Aaron Burr, his relatives found they were broke without his government salary. Willard Sterne Randall, biographer of multiple founding fathers, recounts that Hamilton’s wife was forced to take up a collection at his funeral in order to pay for a proper burial.

What went wrong? Hamilton’s law practice had made him wealthy and a government salary paid the bills once he moved to Washington, but he also had seven children and two mistresses to support. Those expenses, in addition to his spendthrift ways, left Hamilton living from paycheck to paycheck.

The take-away: Don’t stake your family’s financial future on your current salary. The Amicable Society pioneered the first life insurance policy in 1706, well before Hamilton’s demise in 1804, and term life insurance remains an excellent way to provide for loved ones in the event of an untimely death. Also, don’t get into duels. Life insurance usually doesn’t cover those.

Diversify Your Assets

Conventional wisdom holds that investors shouldn’t put all their eggs in one basket, and our nation’s first president prospered by following this truism.

During the early 18th century, Virginia’s landed gentry became rich selling fine tobacco to European buyers. Times were so good for so long that few thought to change their strategy when the bottom fell out of the market in the 1760s, and Jefferson in particular continued to throw good money after bad as prices plummeted. George W. wasn’t as foolish. “Washington was the first to figure out that you had to diversify,” explains Randall. “Only Washington figured out that you couldn’t rely on a single crop.”

After determining tobacco to be a poor investment, Washington switched to wheat. He shipped his finest grain overseas and sold the lower quality product to his Virginia neighbors (who, historians believe, used it to feed their slaves). As land lost its value, Washington stopped acquiring new property and started renting out what he owned. He also fished on the Chesapeake and charged local businessmen for the use of his docks. The president was so focussed on revenues that at times he could even be heartless: When a group of revolutionary war veterans became delinquent on rent, they found themselves evicted from the Washington estate by their former commander.

Invest in What You Know

Warren Buffett’s famous piece of investing wisdom is also a major lesson of Benjamin Franklin’s path to success. After running away from home, the young Franklin started a print shop in Boston and started publishing Poor Richard’s Almanac. When Poor Richard’s became a success, Franklin reinvested in publishing.

“What he did that was smart was that he created America’s first media empire,” says Walter Isaacson, former editor of TIME magazine and author of Benjamin Franklin: An American Life. Franklin franchised his printing business to relatives and apprentices and spread them all the way from Pennsylvania to the Carolinas. He also founded the Pennsylvania Gazette, the colonies’ most popular newspaper, and published it on his own presses. In line with his principle of “doing well by doing good,” Franklin used his position as postmaster general to create the first truly national mail service. The new postal network not only provided the country with a means of communication, but also allowed Franklin wider distribution for his various print products. Isaacson says Franklin even provided his publishing affiliates with privileged mail service before ultimately giving all citizens equal access.

Franklin’s domination of the print industry paid off big time. He became America’s first self-made millionaire and was able to retire at age 42.

Don’t Try to Keep Up With the Joneses

Everyone wants to impress their friends, even America’s founders. Alexander Hamilton blew through his fortune trying to match the lifestyle of a colonial gentleman. He worked himself to the bone as a New York lawyer to still-not-quite afford the expenses incurred by Virginia aristocrats.

Similarly, Thomas Jefferson’s dedication to impressing guests with fine wines, not to mention his compulsive nest feathering (his plantation, Monticello, was in an almost constant state of renovation), made him a life-long debtor.

Once again, it was Ben Franklin who set the positive example: Franklin biographer Henry Wilson Brands, professor of history at the University of Austin, believes the inventor’s relative maturity made him immune to the type of one-upmanship that was common amongst the upper classes. By the time he entered politics in earnest, he was hardly threatened by a group of colleagues young enough to be his children. Franklin’s hard work on the way to wealth also deterred him from excessive conspicuous consumption. “Franklin, like many people who earned their money the hard way, was very careful with it,” says Brands. “He worked hard to earn his money and he wasn’t going to squander it.”

Not Good With Money? Get Some Help

In addition to being boring and generally unlikeable, John Adams was not very good with money. Luckily for him, his wife Abigail was something of a financial genius. While John was intent on increasing the size of his estate, Abigail knew that property was a rookie investment. “He had this emotional attachment to land,” recounts Woody Holton, author of an acclaimed Abigail Adams biography. “She told him ‘Thats all well and good, but you’re making 1% on your land and I can get you 25%.'”

She lived up to her word. During the war, Abigail managed the manufacturing of gunpowder and other military supplies while her husband was away. After John ventured to France on business, she instructed him to ship her goods in place of money so she could sell supplies to stores beleaguered by the British blockade. Showing an acute understanding of risk and reward, she even reassured her worried spouse after a few shipments were intercepted by British authorities. “If one in three arrives, I should be a gainer,” explained Abigail in one correspondence. When she finally rejoined John in Europe, the future first lady had put them on the road to wealth. “Financially, the best thing John Adams did for his family was to leave it for 10 years,” says Holton.

As good as her wartime performance was, Abigail’s masterstroke would take place after the revolution. Lacking hard currency, the Continental Congress had been forced to pay soldiers with then-worthless government bonds. Abigail bought bundles of the securities for pennies on the dollar and earned massive sums when the country’s finances stabilized.

Despite Abigail’s talent, John continued to pursue his own bumbling financial strategies. Abigail had to be eternally vigilant, and frequently stepped in at the last minute to stop a particularly ill-conceived venture. After spending the first half of one letter instructing his financial manager to purchase nearby property, John abruptly contradicted the order after an intervention by Abigail. “Shewing [showing] what I had written to Madam she has made me sick of purchasing Veseys Place,” wrote Adams. Instead, at his wife’s urging, he told the manager to purchase more bonds.

Make A Budget… And Stick To It

From a financial perspective, Thomas Jefferson was one giant cautionary tale. He spent too much, saved too little, and had no understanding of how to make money from agriculture. As Barnard history professor Herbert Sloan succinctly puts it, Jefferson “had the remarkable ability to always make the wrong decision.” To make matters worse, Jefferson’s major holdings were in land. Large estates had previously brought in considerable profits, but during his later years farmland became extremely difficult to sell. Jefferson was so destitute during one trip that he borrowed money from one of his slaves.

Yet, despite his dismal economic abilities, Jefferson also kept meticulous financial records. Year after year, he dutifully logged his earnings and expenditures. The problem? He never balanced them. When Jefferson died, his estate was essentially liquidated to pay his creditors.

 

MONEY Investing

Are You On Your Way to $1 Million? Tell Us Your Story.

There are many ways to build lasting wealth. MONEY wants to hear how you're doing it.

The number of millionaires in America hit 9.6 million this year, a record high and yet another sign that the wealthy are recovering from the Great Recession, thanks in large part to stock market and real estate gains.

Are you on target to join their ranks? Are you taking steps—through your savings, your career decisions, your investments, or your rental properties—to make sure that by the time you retire your net worth will be in the seven figures? MONEY wants to hear your story.

Related: Where Are You On the Road to Wealth?

There are many paths to that kind of wealth, and they don’t necessarily involve a sudden windfall, a big head start, or a six-figure salary. You can build up a million or more in assets through steady saving, a sensible approach to investing, modest real estate holdings, or a winning small business idea. Are you finding ways to boost your savings at certain point of your life, like when the kids are out of school or the mortgage is paid up? Are you planning to take more or fewer risks with your investments as you near retirement? And if you invest in real estate, do you find that owning even one or two rental properties is enough to achieve prosperity?

Got a story like this to share? Use the confidential form below to tell us a bit about what you’re doing right, plus let us know where you’re from, what you do for a living, and how old you are. We won’t use your story unless we speak with you first.

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