How a charity turned £2,000 into £1.3 Billion
How can you end up with £1.3 Billion with a £2000 investment? Give it 400 years. That’s the story of the Henry Smith Charity.
I stumbled upon the Henry Smith Charity while going through the Wikipedia homepage. Henry Smith came up as a “Did you know…” on 24th November 2024. (Sidenote: The Wikipedia homepage is a great source of information for learning more about the world.) It was a charity started by a 16th/17th century moneylender named Henry Smith.
As of 31st December 2023, the charity managed assets in excess of £1.3 Billion. However, the charity had more humble beginnings. The charity was bequeathed £2000 in 1628. The initial aim was to support ‘the poore Captives being slaves under the Turkish pirates’ and to provide ‘relief of the poorest of his kindred who were unable to work for their living’.
According to the Bank of England’s inflation calculator, his initial £2000 (Inflation calculator | Bank of England) is worth £447,061.74 as of 2023. That’s a 223.5x multiple increase since the initial donation corresponding to an inflation rate of approximately 1.375% annually. (Perhaps inflation is the wrong measure here given the centuries that have passed in the interim.)
If the £2000 bequeath simply kept up with inflation, it would only be worth around £450k as of 2023. So how did the donation turn into £1.3 Billion?
The initial donation was invested in acquiring land around London in the parishes of Kensington, Chelsea and St. Margaret’s, Westminster. As London grew, the value of the investment kept growing. According to the Charity’s investment strategy, they have since diversified and also invest in other assets as well now.
In effect, they bought an asset, held onto it for almost 400 years, and let compounding do its magic. The Henry Smith Charity was able to compound its assets at 3.429% annually for 396 years. In percent terms, 1.375% and 3.429% do not appear too far apart, but, given centuries of compounding, it can result in mind-bogglingly different numbers.
I like this story because it reflects the flipside of letting compounding do its magic. Many times, the focus of compounding stories is on percent results, and rightfully so, one only has limited time on our planet. However, if one has the luxury of (relatively speaking) infinite time, even a (relatively) low growth rate can lead to mind boggling results.
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