Today I am proud to introduce my newest staff writer: Alex Humphrey. I am confident that you will enjoy Alex’s crisp and sometimes edgy writing style. You can read more of Alex over at his site: Entreprelife.
You’ve heard the story about the Tortoise and the Hare, right? For those that weren’t exposed to the childhood favorite, it goes like this:
Tortoise is sick of Hare teasing him for being so slow. One day he challenges Hare to a race. As the race begins, Hare easily rushes ahead. When Hare is half way, he looks back and sees Tortoise far behind. To make tortoise look even worse, Hare decides to take a nap right on the track! But when Hare wakes up, he sees Tortoise inches from the finish line! He runs as fast as he can but is beaten by the tortoise who gleefully says,
“Slowly does it every time!”
The moral is simple: do the work and you’ll win the race. Hare thinks he can get by without effort and he loses. The tortoise slowly plods along, even when he’s far behind, and eventually wins the race.
If Tortoise was an investor (and I’m sure he is) he would become a millionaire the same way he won the race: slowly every time.
Invest Like the Tortoise
Imagine the Tortoise as a “normal” investor. He puts about 15% of his income into mutual funds with a pretty boring breakdown:
- 25% in Growth
- 25% in Growth and Income
- 25% in Aggressive Growth
- 25% in International
It’s average, boring and gets a normal 12-to-18% return. Some months are up, some months are down, but the tortoise plugs along for 30 years. If his investments were in a Roth IRA and he contributed $414 a year at a 12% interest rate he would have 1.46 million in 30 years. Even more exciting, our tortoise only contributed $149,000 dollars!
He’s a millionaire by year 27 and if he increases his contributions at any time he’s a millionaire significantly sooner.
What About the Hare?
The Hare doesn’t want to wait 30 years to grow that nest into a million bucks. Watching 4,000 become 5,000 that first year isn’t exciting. He’s investing in junk bonds, gold, and learning to time the market. He thinks he can get 10 or 20 times his investment by taking the risks. It’s more fun than the tortoise’s method and he will be a millionaire in a few years!
Sadly for him, history shows us that Hare investors get about the same returns as gamblers. They may see significant early gains, but in the end the house wins and they lose everything.
Be the Tortoise
It’s easy to get swept up in big numbers and “secret methods”. The Ponzi scheme works because the Hare’s method is more exciting than the tortoise’s.
But if you want to retire a millionaire, then you need to remember: “Slowly does it every time!”
And if you have more questions about investments, Joe has a several investing resources here on the blog.
Are you investing?
Alex Humphrey is a personal finance writer and coach at EntrepreLife a personal finance blog that teaches easy ways to dominate money by dropping debt, investing well, and saving for the things you love to do. When he’s not blogging he leads a youth group, spends time with his wife, and figures out new ways to teach people personal finances. You can follow him on Twitter and Facebook and subscribe to the EntrepreLife mailing list.