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  • Writer's pictureGrant Means

Rematch: the Tortoise and the Hare

Updated: Sep 4, 2020

Who would win?

Suppose the tortoise and the hare agree to a re-match of their famous race. However, instead of trying to cross the finish line first, they want to see who can save the most for retirement. They decide to retire in 45 years and choose a mutual fund that returns 10% annually.

Immediately, the hare contributes $500 per month and maintains that pace for the first 15 years. After that, he decides he’s far enough ahead and loses interest in the retirement challenge. The tortoise, always slow to start, realizes he needs to catch up to the hare – he decides to start contributing $1,000 each month, and commits to doing so for the remaining 30 years. That’s twice the number of contributions and twice the amount of money per contribution – four times as much income earmarked (or, rather, shellmarked) for retirement.

So, who ends up winning?  Given that they both spent decades putting compound interest to work, both contestants are winners (check out our calculations at Tortoise + Hare Retirement)!  That said, the tortoise ends up with less money. After 30 years of contributions totaling $360,000, he retires with a $1.97 Million nest egg. Meanwhile, the hare’s $90,000 in lifetime contributions, followed by 30 years of passive compound growth, swelled his coffers to over $3.3 Million and made him the undisputed champion. How could ¼ as much money turn into 50% more money? These un-intuitive results illustrate the power of compound interest.

Finally, it is worth noting that the tortoise and hare strategies are not mutually exclusive.  A meticulous, lifelong investor would accumulate $5.5 Million after following both paths. Start investing early, and keep going. While it is brutally challenging to beat market returns, you have complete control over two things:

1) When you start earning those returns. An old Chinese proverb reinforces the need to begin sooner: “The best time to plant a tree [or start investing] was 20 years ago. The second best time is now.”

2) How consistently you commit to putting your dollars to work for you.  A verse from Paul’s letter to the church at Galatia urges our need for diligence: “And let us not grow weary of doing good, for in due season we will reap, if we do not give up.” ~Galatians 6:9

The Moral of the Story: Slow & steady wins the race, and compound interest is a powerful running buddy. Start now and keep going!

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