Once upon a time the hare and the tortoise had a race. We all know this story, right? After all, it was our favourite story amongst all which we heard from our grandma. The story concludes with tortoise winning the race.
Moral of the story: Slow and steady wins the race.
But nobody knows what happens after the tortoise wins the race. So here it goes... The hare could not get over the fact that he was defeated by none other than the slowest animal – tortoise. Feeling enraged and dejected, he visited the tortoise’s abode the next day. “You won the race, but that was completely out of sheer luck. I took a nap and that’s the reason you could reach the finish line before me,” yelled the hare. “You are wrong. I won the race because of your overconfidence,” replied the tortoise in a timid voice. “Ok, let’s have another race. This challenge would be different from the previous one. It’s a race about who gets richer faster. Let’s meet again after 10 years and see who has more money,” said the hare in a loud confident tone. “I don’t need to prove you anything, Mr. Arrogant. However, if you still insist, I am up for a game,” replied the tortoise optimistically. Listening to this, the hare walked out of the tortoise’s home with the desperate desire to vanquish tortoise this time. On his way, he thinks, “Such a nincompoop animal. I earn more than him. This race belongs to me. He will never be able to defeat me.” With such thoughts, he starts feeling powerful and pompous. Meanwhile, the tortoise goes to the bank and deposits INR 10,000 on the same day. He creates a strategy. “Hare earns more than me. Starting this month, if I save INR 10,000 every month and invest it in bank’s fixed deposit account giving me a 10% interest, I should be able to save enough to give hare a tough competition.” Hare in his treacherous ignorance mode, is unaware of the tortoise’s plan. After 5 years, he finds tortoise visiting the bank. He starts stalking him and discovers that tortoise had been depositing INR 10,000 in his fixed deposit account every month since the day of their challenge. "What if he deposits INR 10,000 every month? I still have 5 years in my hand. I will invest INR 25,000 every month at 10% p.a. This amount is more than double as compared to the tortoise’s monthly investment. No one can defeat me,” he laughs out dauntingly. After 10 years, they again meet at the tortoise’s place. “Show me the money you have accumulated in 10 years.” Tortoise points towards the bag containing INR 20,55,685. Stunned and petrified, the hare throws his bag carrying INR 19,47,692.
Tortoise – Our financial mentor and the lessons we learned from him:
- He trusted the power of compounding: Compound interest is nothing but interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or a loan. ‘Power of doubling or compounding’ makes numbers grow. He invested INR 10,000 every month at 10% p.a. which was compounded on a quarterly basis. This helped him to create wealth over a period of 10 years.
- Not giving up is the tortoise second nature: Tortoise knew that his challenger earned more than him. However, this did not deter him and instead, devised a strategy to win the race.
- He started out early: When we invest early in our lives and hold onto it for along-term, the amount keeps growing at a specific interest rate. At the time of maturity, it becomes a big chunk all thanks to the magic of compound interest.
- He is the epitome of 'Patient and Disciplined Investor': Journey towards long term wealth creation demands patience and consistency. If you continue to invest in a disciplined fashion for a longer period of time, you will be astonished by the wealth you have been able to create.
Want to ace the race like a ‘Tortoise?’
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