Creating Wealth the Slow and Steady way
Amar is a CFA Charterholder and CFP, having over 20 years of experience in IT and Financial Services. He is very passionate about spreading financial literacy and has authored four bestselling books on Personal Finance.
21 Nov, 2017
The most remembered and ingrained story from our kindergarten days is probably the one about ‘The Hare and the Tortoise’. The idea that being the fastest might not get you where you want to be or what you want resonates well with all people. Not just children. Unfortunately, as we grow up and get dragged into the rat race, this moral of ‘Slow and Steady’ gets replaced with ‘Fast and Crazy’.
Let’s take the example of the Fast Food industry to see why this new mantra might not be in our best interest. For a good part of the past century, fast foods have come to become a staple diet for many. Despite their obvious ramifications on one’s health, these foods continued to be people’s first preferences. It, for all intents and purposes, represents everything ‘Fast and Crazy’. While this trend worked for a while and still does in parts, it lost steam along the way and today, people are adopting the ‘Slow Food’ movement. The ‘Slow Food’ movement professes clean eating and stands as a much healthier alternative to fast foods. Thus, to lead a longer and healthier life, it is better to adopt the ‘Slow and Steady’ mantra.
As investors, this is the path to take while making investments. The fact that patience should be the number one virtue to practice while aiming for long term investment success is very well known. But this isn’t an easy thing to do and it becomes doubly hard in the face of the constant ‘noise’ and mindless bombardment from financial media and other pundits. Thus, getting carried away in the short term is not just east but it is what happens to most people.
The objective of investing should be to create and preserve wealth, all the while reaping benefits from short term opportunities in the right measures.
Carl Richards propounds the idea of building up a Slow and Steady Capital. He points out its merits by saying:
- The focus of Slow and Steady Capital is to avoid any large losses, rather than chasing the next big investment opportunity. There is a difference between making a killing and getting killed and it needs to be understood to make successful investments in the long run.
- Slow and Steady Capital ensures that you can have a life, that you can enjoy your present. If you accept the principle of ‘slow and steady wins the race’ and base your investment decisions upon this principle, it is possible to tune out the noise of Dalal Street and invest successfully.
- Slow and Steady Capital knows that the goal of investing is to ensure that you have enough capital to fund the goals you deem as important. There is also a need to decide what qualifies as an important goal. Simply being able to brag about investment triumph at the next family gathering isn’t a financial goal; saving to fund your child’s education or have a big family vacation can qualify as a financial goal.
Taking the Slow and Steady route is not easy. Watching people around you adopt ‘quick rich’ schemes and achieve success, albeit temporary, can be difficult. But it is important to persist, because in the long run it is always the ‘tortoise’ who wins.
Another thing to remember is not to take on all the advice you receive. Make you own, well thought out decisions. And remember, ALL stories about people getting rich quick come with a huge grain of salt.
So, which path do you intend to take?