BY: FAZAAD BACCHUS
There is a famous Aesop fable that I am sure most are familiar with. It tells the story of a farmer who had a goose that laid a golden egg every day. It was more than enough for the family to be quite well off, but at night just before going off to sleep; the farmer would wonder if he were to cut open the goose perhaps he could get all the eggs at once. This thought grew stronger upon him and soon the thought became unbearably strong. Greed had now overtaken him, he couldn’t stop thinking about it. One morning bright and early he took the goose into the farmhouse and proceeded to remove all the eggs at once. Well, we all know how that story ended. There were no eggs in the belly of the goose neither did it lay eggs in the future. Everything was now lost as he had killed off his most valued prize due to greed.
In today’s modern world, this fable would do well to inform us that life may have changed but some of its principles remain till now. Greed is not good. Ambition is good.
Let us take this conversation to the investment world.
Imagine you have a nest egg that produces for you a reasonable amount of money on which you are able to retire. Every month the cheque goes to your bank and you are happy knowing you can depend on it. Eventually, someone comes along and says to you; “if you would like, I can invest your money for you where you can earn 50% more”. Initially, you dismiss the thought, but at night, just before bed, it comes back to you. The following night, it comes again and soon the thought germinates because a seed was planted. You begin to imagine what you can do with the extra money, holidays; change the car, more gifts for the grandkids etc.
And after a week, the thought cannot leave you. So. you pick up the phone and you call the deliverer. At this point, there is no turning back. You have already decided that you want the higher return. Let’s go back to our Aesop fable; the farmer wanted all the eggs at once so he sacrificed the goose. In your decision to get higher returns, have you considered whether you may be making a sacrifice of your principal? And this is the very question that you must always ask yourself. What new level of risk am I assuming in my portfolio to earn these higher returns?
So, when someone comes along and says to you “if you would like, I can invest your money for you where you can earn 50% more” or they say “I can get you a return of 15% like some of my investments did last year”, be wary of them. Wary does not mean impossible to happen, wary means be cautious and understand the risk involved to make that kind of return. Remember its better a return of principal than a return on principal. So, if you have a nest egg that you need to produce an income, do be careful don’t invest in risky investments where you can lose it all.
