Special Alert: Glory be! President Donald Trump’s tariff-ying trade war may be coming to an end. The U.S. Court of International Trade has ruled unanimously that the President abused his executive power in imposing tariffs, which is the responsibility of Congress. See my “You Nailed It!” column below. It’s time to celebrate! Long live the spirit of Ben Franklin and free trade!
“The money that makes money, makes more money.” — Poor Richard’s Almanac
I call it the “Automatic Wealth Builder” — a simple way to increase your wealth year after year. Here’s the background:
One of the most important chapters in my new book, “THE GREATEST AMERICAN,” is chapter 13.
In this chapter, I talk about Ben Franklin as the father of thrift. His most famous saying is “A penny saved is a penny earned.” (Poor Richard actually wrote, “A penny spar’d is twice got.”)
This is the parsimonious side of saving — living within your means, sacrificing current consumption and piling up cash in a bank account like Uncle Scrooge.
But there’s also the benefits of saving — the thrill of investing your money and seeing it grow, either in savings account at your local bank, or earning dividends from publicly traded companies (the stock market).
Ben Franklin called it the “Power of Compounded Interest.”
The Automatic Wealth Builder
The Automatic Wealth Builder (AIP) is a combination of dollar-cost averaging and the power of compounded interest.
Using AIP, you are on your way to financial independence. You are likely to see your account grow every month and every year.
Sounds hard to believe, but it’s true.
How does it work?
First, you dollar-cost average. You open up an AIP account with your favorite bank or brokerage account and have X amount taken out of your paycheck or checking account automatically every month.
Second, you invest in dividend-paying stocks or a stock index fund that pays regular dividends.
Third, you invest in growth stocks and/or growth stock index funds that are likely to increase in value over time.
‘The Single Best Investment’
Money manager Lowell Miller calls it “The Single Best Investment.” He summarized his #1 investment strategy with this formula:
Quality Stocks + High Dividends + Reinvestment of Dividends = High Total Return
Lowell Miller declares, “Dividend growth is the true signal of a prospering company.” (“Maxims of Wall Street,” p. 183)
Two Real-World Examples
How successful can this formula be? I’ll give you an example. I’ve held two stocks in my investment newsletter, Forecasts & Strategies, through thick and thin, over a decade or more.
Both stocks are conservative investments with a great long-term record. Both pay regular high dividends, and both have adopted a rising dividend policy since their inception.
Using Miller’s simple formula, I recommended a high-dividend growth stock right after the financial crisis of 2008. This energy stock pays a quarterly rising dividend.
This energy firm continued to pay solid dividends during the crisis, and it’s still going strong after 16 years. It’s now a member of the Dividend Aristocrat Club (having increased its dividend for 25 years or more).
The total return (the rise in the price of the stock plus dividends) comes to 232%.
Not bad, considering all the ups and downs of the oil business and the stock market.
But here’s the shocking truth: if you reinvested your dividends over those 16 years, your total return is ALMOST DOUBLE, or 461%!
‘The Gain Is Simply Insane’
My second example is a financial stock that invests (through debt and equity investments) in over 100 good-quality private companies around the country. The money managers of the fund take a very conservative approach, earning interest income while it waits to make a capital gain on the private companies when they go public or are bought out. Still, it pays an above-average dividend.
Using Miller’s formula, I recommended the investment company in early 2012. It too pays a regular and rising dividend. Over the past 13 years, it has generated a profit of 279%, including dividends.
Not bad. But guess what? If you reinvested your dividends, the total return is 521.6%! That’s an annualized compounded return of 12.3%.
‘The Eighth Wonder of the World’
To achieve these phenomenal returns, you need to do one simple thing when you buy a good quality stock: click on the button that says, “reinvest all dividends.” It’s that simple.
Warren Buffett once said, “My wealth has come from a combination of living in America, some lucky genes and compound interest.”
This chart shows the difference between “simple” interest and “compound” interest:
Ben Franklin Popularized the Power of Compound Interest
Ben Franklin practiced what he preached when it came to taking advantage of compound interest.
A year before dying, Franklin amended his last will and donated £1,000 to his native Boston and his adopted Philadelphia. He wanted them to see the incredible power of compounding at work.
At 5% a year, £1,000 would have turned into about $20 million. During the first 100 years, the funds were to be loaned out at 5% to able workers. After 100 years, Franklin required that each city take 75% of the funds to be used for public works (bridges, roads, public buildings, etc.). They were to then continue lending the money for another 100 years. At the end of 200 years (around 1990), each city would get about 25% of the money and their respective states would get the rest.
Officials in Boston and Philadelphia didn’t exactly follow Franklin’s wishes. Boston invested in savings accounts and an insurance company and only had about $5 million when the funds were dispersed in the early 1990s. Philadelphia invested largely in mortgages and had a little over $2 million at the end.
Nevertheless, turning £2,000 into $7 million is a testimony to the power of compound interest.
Action to Take: you can do the same with just a click of a button. Hit “reinvest dividends” when you buy dividend-paying stocks.
New Franklin Book Is a Hit
Tuesday, May 27, was the official publication date for “THE GREATEST AMERICAN.” It’s published by Republic Books and distributed by Simon & Schuster.
Here’s my press release: Mark Skousen, America’s Economist, Revives Ben Franklin’s Wisdom for Today’s President — World News Report — EIN Presswire.
The hardback is now available at your favorite bookstore, or online at The Greatest American: Benjamin Franklin, History’s Most Versatile Genius by Mark Skousen on Amazon. Feel free to write a review on Amazon.
The book has already sold hundreds of pre-publication copies, and many have bought multiple copies for friends and relatives. A subscriber bought two copies for himself last month. He just ordered another six copies for friends and relatives. Many subscribers have bought seven, eight and even 10 copies.
Special Alert: Incredibly, Amazon is reporting that my new book is “temporarily out of stock” due to high demand. They should get new copies in shortly, but if you can’t wait…
You can also order copies directly at a discount ($24 for the first copy, $19 for all additional copies) at Skousen Books at Discount. All copies are autographed and mailed at no extra charge inside the 50 states.
Note: My new book is NOT a traditional biography of Franklin; dozens of books have been written detailing his life. Rather, mine is unique — 80 chapters on what we can learn from this unique founder, with Franklin’s very modern views on the trade war and globalization, diplomacy and dealing with enemies, taxes and inflation, deficits and the national debt, science and technology, healthy living and living long, racism and discrimination, education and the American dream, inequality and financial independence, wars and conflicts, investing and the economy, sex and family life.
Alex Green (Oxford Club) states, “If anyone embodies the Renaissance man, it’s Ben Franklin — printer, scientist, musician, inventor, author, activist, statesman and diplomat. Mark Skousen delves into every facet of his remarkable life, including Franklin’s surprisingly active love life into his eighties, in this lively and entertaining book. Highly recommended.”
Update: An Audible version of the book is almost complete. Stay tuned.
P.S. I’ll be speaking about my book at FreedomFest June 11-14 at the Palm Springs Convention Center, California, followed by an autograph session. There’s still time to join us. Go to www.freedomfest.com, or call Hayley, 1-855-850-3733, ext. 202. Use code EAGLE to get $100 off the retail price. But hurry: this offer ends on June 1!
Good investing, AEIOU,
Mark Skousen
You Nailed It!
Federal Court Liberates U.S. Firms from Trump’s Tariff-ying Taxes
by Mark Skousen
Finally, I’m pleased to see that the U.S. Court of International Trade has issued a unanimous ruling against President Donald Trump’s “Liberation Day” tariffs. The ruling was brought about by Liberty Justice Center and twelve states, led by Oregon. The judges were appointed by Reagan, Obama and Trump, so it was a balanced judgment. The complainants prevailed on all counts.
When President Trump announced the across-the-board tariffs earlier this year, I immediately thought that he abused the emergency powers (the International Emergency Economic Powers Act of 1977), since there was no emergency and it is the responsibility of Congress — not the President — to establish tariffs and duties. See Article 1, Section 8, of the Constitution.
It is one thing to address a single trade policy by firms or a single nation; it’s quite another for the President to unilaterally impose a 10% tariff on all nations. This is Congress’s responsibility.
Trump and his Department of Justice plan to appeal the case, but hopefully they will lose. I can’t imagine the Supreme Court reversing the federal court’s decision.
Now, finally, it is in Congress’s court to determine trade policy. America was never supposed to be one-man rule.
This is the genius of the American system of government — a proper balance of power between the legislature, executive and the judiciary.
Long live the Constitution!
The stock market is up on the news.
