The Tortoise and the Hare (An Investment Parable)

I do love using children’s parables to illustrate adult principles.? One that I go to the well too often is the age-old story of the tortoise and the hare.? Always loved this children’s tale, although I do find it riddled with peculiarities.?

For instance, would a hare really beat a tortoise in a race?? Who refers to a rabbit as a hare, like honestly I’ve never uttered those words except in relation to this book.? Sometimes in life isn’t it better to be the hare, like watching my middle daughter Bella get ready for school?? And finally, come on who doesn’t want to be the fastest in a race and couldn’t the hair simply get the biggest lead and then walk at a tortoise pace to the finish line??

Anyway, you’ve heard enough about this stinking book, now how is it relevant at all to the adult in us all and our investment strategy?? Or asked differently, is it better to be the tortoise or the hare when it comes to investing?? My answer is both!? Now let me elaborate as I use this analogy all the time with clients.

I tell people when it comes to investing it is a marathon and a sprint, or you have to be the tortoise and the hair.? You see there are two huge fundamental principles when it comes to investing.? The first is the power of time (tortoise) and compounding (hare).?

The Tortoise?

I’ve written about the impact of time on your investments.? The longer you can let your money compound the more magical, the 8th wonder of the world, compounding will work.? For instance, a 10% return is great if you get it once, but if you can average it over 7.2 years your money/investments will double just like that.? I make this comment to clients when I want them to understand the importance of investing now and consistently over time.?

Sure, you can wait 10 years to start investing, but you are missing the magic of the tortoise.? You are not benefiting from the consistent compounding effect your investments could have been having.? Maybe you feel better because you are debt-free ten years later before you start investing, but you have missed and really can’t get back that opportunity cost.

The Hare

I then go on to tell clients that you can see how important the tortoise is for their investment portfolio and financial freedom, but where does the hare come into play?? Basically, the more money you can front load the more magical compounding can be.? If you started with $1,000 in investing and didn’t put another dollar in, at a 10% return your money could double 4 times by retirement.? Thus, your thousand-dollar investment would turn into $16,000, not bad right?? But what if you were able to start with $1,000,000 and never put a dollar in?? Well simply put you’d have $16,000,000.?

Parable

You can start to see where I am going with all this and how you truly need both of these factors, the tortoise and the hare, to be successful in investing.? I try to espouse the benefits and urgency to invest as much as you can as soon as possible.? This will afford you the benefit of both time and compounding.?

Let’s say you waited the past 2 years to invest because 2022 was a bad year in the markets.? In that scenario, you would have missed out on your money increasing close to 40%!? Said differently, if you only had $1,000 invested you would now have $1,400 vs. the individual who had $1,000,000 invested and now has $1,400,000.? Just a small difference right?

Now I know I am using extremes, but I always find that is the best way to make a point.? I certainly recognize that most of us at 25 years old don’t have the luxury of having $1,000,000 to invest.? That said the more we can front load our investments, along with the more time we can let them do what they do best the better off you will likely be.? If nothing less, I am hoping that maybe this can help adjust your thought pattern or tendencies.? Perhaps that extra $50,000 sitting in your cash account should be deployed like yesterday, or maybe instead of waiting until your car is paid off you start putting small amounts of dollars into your investments instead of overpaying that debt.?

There are millions, perhaps a slight exaggeration, of ways these two concepts can simply and effectively shape your investment mind frame.? So, next time you are asked about your investment philosophy tell people you invest like a tortoise and hare!

Stay wealthy, healthy, and happy!