Common Cents #25 - The Tortoise and the Hare

 

The Tortoise and the Hare

Everyone is familiar with Aesop’s Fable of the Tortoise and the Hare. The humble tortoise challenges the arrogant hare to a race. The quick rabbit jumps to an early lead and then decides to take a nap. He awakens to find the tortoise has trudged pass him to win the race. The supposed moral of this story is that slow and steady wins the race, but often when children are asked their interpretation, they say that the hare is clearly faster, but he shouldn’t have stopped for the nap. Nobody really wants to identify with the slow and steady turtle.

I like to think of financial security as a long, steady, and sometimes boring race, a marathon not a sprint. To me, having financial security means not being awake at night worrying about money or paying the bills. It is not about being rich, but about being able to think about other things and make plans without being constrained by a lack of financial resources.

Among my friends are several millionaires. None of them won the lottery, made a brilliant invention, had a hit record, or made some kind of big business deal. They all just spent less than they made and invested the rest over a long period of time. Proverbs 28:19-20 says, “Those who work their land will have abundant food, but those who chase fantasies will have their fill of poverty.  A faithful person will be richly blessed, but one eager to get rich will not go unpunished.”

Warren Buffet is one of the wealthiest people on the planet. He freely gives financial advice to anyone who asks. A reporter once asked him why so few people take his advice. He quickly answered, “No one wants to get rich slow.” Accumulating wealth the “Buffet Way” is not hard, it is just not glamorous.

The key to financial security, millionaire or otherwise, is to put a little money back every time you get paid, starting as young as possible. We started putting money in an IRA when I was 25. That was the first year they were available. The simplest and safest investment in the long-term is the stock market, specifically a mutual fund. Or better yet, a group of funds for the maximum diversity.

Since the stock market is hardly consistent in the short term, watching for deals or dips in the price of stock is seldom a good strategy. The best idea is “dollar-cost-averaging.” In other words, if I invest the same dollar amount every month, I am getting more for my money when the prices are low, and I am buying fewer stocks when the prices are higher. I don’t have to be concerned about the daily fluctuations because the dollar-cost-averaging system balances that out. The key is to think “long-term.”

According to Bloomberg, 48% of Americans over 55 have saved nothing for retirement. This looks like a looming disaster for too many people. Social Security is a safety net to keep older people from being destitute, but it is hardly a living wage for most people.

Defined benefit pension plans are mostly unavailable now, except for government workers. Only about one in five of the total workforce can expect some sort of retirement benefit from their employer. Those are mostly military or government retirees. Currently, we are truly on our own to prepare for the days when we do not or cannot go to work every day. IRAs and 401(k) programs make it easy to get started. Regular and consistent contributions are the key to long-term financial security.  See you at the finish line of the race!