The Hare & the Tortoise
A Hare was making fun of the Tortoise one day for being so slow. “Do you ever get anywhere?” he asked with a mocking laugh. “Yes,” replied the Tortoise, “and I get there sooner than you think. I’ll run you a race and prove it.” The Hare was much amused at the idea of running a race with the Tortoise, but for the fun of the thing he agreed. So the Fox, who had consented to act as judge, marked the distance and started the runners off. The Hare was soon far out of sight, and to make the Tortoise feel very deeply how ridiculous it was for him to try a race with a Hare, he lay down beside the course to take a nap until the Tortoise should catch up. The Tortoise meanwhile kept going slowly but steadily, and, after a time, passed the place where the Hare was sleeping. But the Hare slept on very peacefully; and when at last he did wake up, the Tortoise was near the goal. The Hare now ran his swiftest, but he could not overtake the Tortoise in time.
Slow goes it. Steady goes the course. Patience is worth more than a clever jump. The crown belongs to one who forbears.
There was an ancient advertisement for Smith Barney (financial advisers) that stated “We make money the old-fashioned way, we earn it”. Making money can be boring until it isn’t.
The point is don’t try to make a killing, instead aim for the rule of 72. Double your money every 8 or 9 years. Take advantage of the most powerful equation in the universe… compound interest. The rule of 72 is the goal post. Earn 9% in 8yrs (9x8=72) and you double your money. Earn 8% in 9yrs and you double your money. I will take either one.
If you double your money every 8 years and you start with 1000$ then in 50 years you will have 64000$. Imagine what happens if you add to that through savings each year. THe stock market averages 10% per year (understanding that there can be many down years in a row with occassional up years to make up the difference). If you start with 1000 and just toss it into an market indexed ETF you would have approximately 117000$ at the end. Again, that is if you never add another dollar yourself. The most important part of this formula is time. THe time value of money is geometric.
I had a very smart friend (studying to be the successful Doctor) say to me “Halley’s Comet is coming next year, we should invest in telescopes because everyone will want one.” I watched telescope stocks after that and … they were duds, but seeing the comet was awesome. His clever thought was a great hunch but backed by nothing but hopeful thinking.
My father was an economist and he taught me to respect financial fundamentals. His wisdom has served me well and has allowed my wife and I a comfortable retirement. The most important lesson I learned is the power of compounding over time. It is foremost, it takes time, but the earlier you begin, the more it gives back.
The power of compounding is exemplified by a myth regarding a King who appreciated a wise subject who taught him chess. He offered the subject whatever he wanted. The wise subject merely asked for one grain of wheat on the first of 64 game squares,then double that on the second square, and double that on the third square. The King laughed until he realized that all the wheat grains in the world would fail to meet the wise man’s request.
Enjoy!
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