We have all heard Aesop’s Fable about the race between the tortoise and the hare. The hare, convinced that he was much faster than the tortoise, took time out for a meal and a nap. When he woke up he realized his mistake but the tortoise crossed the finish line first.
It seems that this fable is especially true about how people grow rich when investing. There are some spectacularly wealth people who got that way virtually over night – we have all read about them – but the vast majority of the “High Net Worth” (HNW) people – those with at least $3 million in investable assets – did it the tortoise way.
The interesting thing about these HNW people is that they rose from the poor and the middle class; they did not inherit their wealth.
A study by Bank of America and U.S. Trust found that 77% – more than three quarters – of their clients grew their wealth slowly. 83% said that they grew rich by making small wins rather than taking large risks. They grew their wealth by careful investing and avoiding major losses.
In our practice we have met quite a few people who managed to turn modest incomes into multi-million dollar portfolios. We have also spoken with people who took big investment risks only to fail, and have to continue to work long after they planned to retire.
It’s up to each one of us to decide what race we wish to run. But keep in mind that the odds favor the tortoise over the hare. And if you have a problem with the slow-but-steady approach to wealth, get a good RIA who will guide you.