You know the fable: the hare, sure of his speed, takes a nap and is beaten by the tortoise who never stopped moving. Aesop wasn't talking about money. He could have been.
Two ways to save
The hare saver sprints. One month he puts a lot aside, then nothing for six months. He hears about a "hot tip" and changes everything. He sells as soon as prices drop and buys back when they rise. He's always on the move… and pays at every step.
The tortoise saver puts the same small amount aside every month without overthinking it. She doesn't check her account every day. She isn't cleverer: she's steady.
What the numbers say
Two American researchers, Brad Barber and Terrance Odean, studied the accounts of more than 66,000 households between 1991 and 1996. The result: the households that bought and sold the most earned 11.4% a year, while the market as a whole returned 17.9%. By constantly moving, the hares lost more than a third of the possible gain. Their conclusion is in the title of their study: trading is hazardous to your wealth.
A very simple example
Two children each receive CHF 50 a month from their parents, from birth to 18. Each has therefore put in CHF 10,800.
- The tortoise leaves her money alone in an investment that returns 5% a year on average. At 18, she has about CHF 17,460.
- The hare has the same investment, but keeps getting in and out and pays fees each time. Average result: 3.5% a year. At 18, he has about CHF 15,015.
Same starting money, same investment. Almost CHF 2,450 difference, just from all the fidgeting. That's the price of a nice bike.
Why the tortoise wins
- She pays no unnecessary fees: every purchase or sale costs something.
- She never picks the wrong moment: nobody knows when prices will rise or fall. The tortoise doesn't even try.
- She lets time do the work: that's the snowball from our article on compound interest.
Steadiness isn't spectacular. That's exactly why it works: it depends neither on luck nor on the mood of the day, but on a habit you've chosen for yourself.
Try this tonight with your child
- Tell them the fable of the hare and the tortoise, then ask: "And with money, which one would you be?"
- Choose a fixed day together (the first Saturday of the month, for example) when they put a small amount in their "Grow" jar.
- Draw a racetrack with 12 squares. Every time they save, the tortoise moves forward one square. At the end of the year, celebrate the finish.
The amount doesn't matter. What matters is never skipping a square.
Further reading
- Barber, B. M. & Odean, T. (2000). Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Journal of Finance, 55(2), 773–806.
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Educational content, not investment advice. Returns are not guaranteed.