Grandpa Hare fought in the Second World War.  His amazingly quick reflexes made him one of the greatest fighter pilots of his day.  When he darted and dashed about the skies of Sicily during the Allied invasion of southern Europe, below him slogged Grandpa Tortoise.  A born ground pounder if there ever was one.  Before Grandpa Hare, whose first name was Vernon, left for North Africa, his father, Great Grandfather Harry Hare, who was a friend of Walt Disney as a lad, deposited $1000 in the bank at 5% interest for Vernon.  It was a kind of confidence builder.  An expression of faith that Grandpa Hare would make it back to good old Oregon.  As it turned out, the father of good, old, plodding Tortoise did the same thing for him.

Well, as luck, skill and courage would have it, both Grandpa Hare and Grandpa Tortoise made it back, okay.

The first thing Grandpa Hare did after buying a 1946 Mercury convertible with his mustering out pay, was throw a party with the interest on his savings.  He and all his Air Force buddies had such a good time that they decided to have a reunion every year thereafter.  ($50 a year interest went a lot farther back then.)  At their 30 year anniversary bash, good old Vernon because of inflation had to buy beer instead of champaigne, but a grand time was had by all.  Over the years, he had spent $1500 total on the annual parties, and still had $1000 in his bank account.

Grandpa Tortoise was a slogger, as has been already mentioned.  He had a Coca Cola when he got back from Europe, and used his mustering out pay for a down payment on a new shell that he financed with his G.I. Bill benefits.  He got a job as a model for the Volkswagen automobile company and never spent any of his bank interest, instead leaving it there to do whatever bank interest does.
On the day that Grandpa Vernon Hare's aviator pals celebrated their 30th reunion, Grandpa Tortoise asked his banker how much that thousand dollar account had grown over the years.

There was nearly $4324 in his passbook.

Time Passed.  Both Mr. Hare and Mr. Tortoise had children, and since they lived in the same small Oregon town, the kids graduated from the same highschool in the class of '64..

In the Sixties, Grandpa Hare's boy, William, was a track star at the University of Oregon.  He used the $2000 savings account provided by his father, and a small athletic scholarship, to pay his tuition and, of course, have a little fun. Fraternity life was great.  His room mate was a great fellow named Phil Knight who liked athletes.  He had dreams of inventing a new kind of track shoe, but of course that didn't interest Grandpa Hare's son.  He ran barefoot.

Grandpa Tortoise's son, Thomas, was a chip off the old block.  He not only left his father's highschool graduation gift of $2000 in the bank, he decided to make it part of a retirement plan and add $2000 a year to the pot.  Because the market was just then beginning its climb toward the heights of later decades, his purchase of some good, solid stocks like Coca Cola and General Electric resulted in retirement account earnings of 10% a year,

Now, the best laid plans of mice and men oft go astray, and so it happened to Thomas Tortoise.  He had planned to stay with his program for at least 28 years, but when he reached the age of 32 family obligations for a working class tortoise brought investment thngs to a halt.  But, while he could no longer add $2000 to his retirement plan each year, he at least managed to avoid drawing it down.  He never touched a dime of it until he was 60 years old

On his 60th birthday he went to the bank and to his amazement he met his old friend William Hare.  (Not having gone to college, he had lost touch with William after highschool.)

William had also thought about putting away $2000 a year until retirement, but never got around to it.  Being a young single rabbit was too much fun, and retirement was something old folks do. It was ten years after Thomas Tortoise that he finally decided to settle down, get married and begin planning for his future.  Once he reached age 32 he started investing $2,000 a year.  Amazingly, he actually kept at it.  He got some good financial advice along the way, also got into securities and also earned 10% a year on his investments.  In fact, because he had a college degree, he did not run into financial problems like Tortoise and kept investing $2000 a year until he was 60 years old -- for 22 years more than good, old, sturdy Thomas.. 

So, there they were, together again as they waited for their account statements.  When they came, William  Hare just about fell over in shock.  Thomas Tortoise had $505,629 in his account and William  only had $295,262!  He was sure the bank had given him the wrong statement.  How could this be?

Patiently the bank executive explained the power of compound interest.  The length of time that you invest is as powerful as the amount of money you put away.  In this case, even though Thomas Tortoise had put in almost a third less money than William Hare, his money had started working for him 10 years earlier and had more time to compound and grow.  That was the secret. The rate of return on the investment is important, but not nearly as important as getting started early.

The power of compound interest and systematic investing are more important today than they have ever been.  We have experienced and continue to experience a very challenging investment climate.  To keep yourself on track and building a nest egg for your future make a point to follow these 4 rules.

1. Pay yourself first.  Treat this investment as a monthly expense just like your phone or electric bill.  Take advantage of your savings plan where you work.  They make it very easy to put money away before you have an opportunity to spend it.  Do this when the market is strong and when it is weak to take advantage of dollar cost averaging.

2. Take advantage of tax incentives.  Use IRA's, Roth IRA etc to defer or better yet avoid paying taxes on the earnings as they grow and again when you withdraw money from the account.

3. Minimize the loss of principal.  A 50% loss of principal requires a 100% return to make it back.  Be very careful in selecting your investments to match your risk tolerance.

4. Don't give up….ever.  This simple plan allied with the power of compound interest will help you attain your financial goals.  But you have to stick to it.

Moral: He who invests first laughs last.
 
 

© 2003 Mark Neil