The Secret to Long-Term Wealth: Slow and Steady

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I know that this is not a new idea, for we have all heard the story of the tortoise and the hare since we were little. Slow and steady always wins the race.

But it is so easy to forget it when most of what we read in the financial press is written to sell magazines. Slow and steady does not sell magazines.

Having seen the damage that is caused by always looking for the next hot investment, I have been really interested in this idea of slow and steady investing. I love the term "slow capital" that I first heard from Fred Wilson. I would also add "steady." Slow and steady capital comes as close as possible to describing my ideal investment process.

1. Slow and steady capital is far more concerned with avoiding large losses than with chasing the next great investment. Being slow and steady means that you are willing to exchange the opportunity of making a killing for the assurance of never getting killed.

2. Slow and steady capital means you can have a life. If you accept the fact that slow and steady wins the race and you find a way to invest that way, you can turn off all the noise of Wall Street.

A friend of mine in emergency medicine used to tell me that he never knew whether to laugh or cry when he would go run in the mountains behind the hospital during lunch while all the other physicians were huddled around CNBC, as if Jim Cramer was about to reveal the secret to endless wealth. Slow and steady capital allows you to ignore that noise and enjoy your life.

3. Slow and steady capital knows that the goal of investing is to have the capital you need to fund your most important goals. If your goal is to have something to talk about at the next neighborhood party, try something else.

4. Being slow and steady is hard because it always seems that someone is getting rich quick. A few years ago I had a conversation with a client-to-be who told me that he had done pretty well with an aggressive trading strategy. Now, I have heard that enough times over the years to know that we all have selective and short-term memories. Sometimes it only takes a few winning trades for someone to forget the losers.

That was the case here. After talking about it for while, we discovered that in just the last few months things had gone well. But it was on a much smaller capital base, because the client-to-be had lost around 50% in 2008. So if you decide to be slow and steady, remember to take ALL stories of people getting rich quick with a huge grain of salt.

Slow and steady capital: short-term boring, long-term exciting.

A version of this post appeared previously at The New York Times.

Carl Richards is a financial planner and the director of investor education for the BAM ALLIANCE, a community of more than 130 independent wealth management firms throughout the United States. Visit Behavior Gap for more of Carl's sketches and writings.

Carl does not own shares of any companies mentioned. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of GoogleThe Motley Fool has a disclosure policy.


Read/Post Comments (18) | Recommend This Article (90)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 09, 2013, at 1:03 PM, pondee619 wrote:

    I liken it more to the ant and the grasshopper.

  • Report this Comment On January 09, 2013, at 1:11 PM, Mathman6577 wrote:

    Great article. Turning off Wall Street (CNBC, Marketwatch, etc.) should be a primary goal of any long-term investor.

  • Report this Comment On January 09, 2013, at 4:50 PM, AnsgarJohn wrote:

    Would you rather have stocks that go:

    -30%, + 40%, -30%, +40%, -30%, +40, -30%, + 40% or 2%,2%,2%,2%,2%,2%,2%,2%

    A lot of people who choose the first, but do the math.

  • Report this Comment On January 09, 2013, at 5:40 PM, shawnkalin wrote:

    In fact, most people that get wealthy are slow and steady.

    Then when their big chance comes, they seize it! Think Rockefeller, Kennedy, Gates.

    There's always that moment of truth...

  • Report this Comment On January 09, 2013, at 5:51 PM, xetn wrote:

    You also have to consider the effects of price inflation (loss of purchasing power of the currency) as this chart illustrates:

  • Report this Comment On January 09, 2013, at 6:58 PM, NickD wrote:

    Yea but 30k invested In DDD on Jan 1st 2012 made me a killing so far more than I can say for MCD and WMT

  • Report this Comment On January 09, 2013, at 8:10 PM, irvingfisher wrote:

    But what do I do with my MAD MONEY!!??

  • Report this Comment On January 10, 2013, at 8:54 AM, cnebbia wrote:

    Fully agree! This is also my philosophy.

    Then if your investment pays you also some dividend, this is a nice icing on the cake.

  • Report this Comment On January 10, 2013, at 8:58 AM, StopPrintinMoney wrote:

    Ahhhh ... old Wall Street FairyTale - stay invested, forget the fundamentals..... How is it working out for y'all?

  • Report this Comment On January 10, 2013, at 9:28 AM, DrDeVito wrote:

    On January 09, 2013, at 6:58 PM, iseeksafestocks wrote:

    Yea but 30k invested In DDD on Jan 1st 2012 made me a killing so far more than I can say for MCD and WMT

    Good sample size....

  • Report this Comment On January 10, 2013, at 9:35 AM, FundamentalsMan wrote:

    I nice reminder that the goal should be slow, steady and loss averse. When I read the title I was hoping for more of a description of what slow and steady investing would look like.

  • Report this Comment On January 10, 2013, at 11:45 AM, ragourlay wrote:

    For the past 8 years I have put $1500 in each of the two stocks the Fools have recommended via stock advisor. Also have sold when they say sell. It takes discipline, but the results have been outstanding.

  • Report this Comment On January 11, 2013, at 3:31 PM, NickD wrote:

    My 2013 risk is DDD and HOV

  • Report this Comment On January 11, 2013, at 5:56 PM, WineHouse wrote:

    I am for the most part a "slow and steady" (and dividend-growth!) style investor. ALL of my IRA stock investments are in that kind of stuff, as well as all of the stock investments in a non-IRA "retirement" account. I also have a much smaller account (less than 7% of my total stock and bond assets) that I "play with" -- and that's where I hold a little bit of DDD,a little bit of SSYS, a little bit of DASTY (no point in having the hardware if you don't have the software to go with it, right? although DASTY is a better-established company than the first two), a little bit of CRM, of AMZN, of FFIV, of GOOG, of RHT, and of VMW, (all of which I consider highly speculative and risky). Most are "up" from when I bought; a few are "down." DDD and SSYS have been phenomenal since April 2012, possibly because of all the hype/pump (especially from Motley Fool!) -- imagine almost doubling my money in only 9 months! But of course someone buying today could lose half or more of the investment over the NEXT nine months, especially if "players" decide to "take their profits off the table." I know that, and hopefully anyone "foolish" enough to "play" this kind of stock market game knows that too, and therefore wouldn't gamble on such stocks with money that (s)he can't afford to lose.

  • Report this Comment On January 11, 2013, at 7:32 PM, NickD wrote:

    DDD tanked 4 times in 20 years but after those tanks it shot up about 500% so even if it tanks odds are it will shot back up if anything buy but thats if it tanks I might not tank so you need to just buy and hold

  • Report this Comment On January 15, 2013, at 7:05 AM, NanushNanush wrote:

    I got into both DDD and SSYS way, way back in Sept 2010, and yes they tanked a few times.

    But with my adrenalin addicted strategies that I inherited from my dad, in the bigger picture, I would have done just as well with some boring, reliable MLPs.

    Rather than always running to the internet, I would focus at my work so much better, create and sell more. Sell more, rather than dipping into my stock earnings. (I'm self employed, so the temptation to waste half a day reading up on the stocks, is always there.)

  • Report this Comment On January 17, 2013, at 9:39 AM, damilkman wrote:

    I believe the authors point is for those who are not experts and do not have the time or interest to put research into the market you are better off with slow and steady verse dumping all of your money into what someone says is the next hot pick.

    For those who have the savy, grats. But there are a lot of individuals who are not so good at this game.

  • Report this Comment On January 22, 2013, at 11:32 AM, Subsound90 wrote:

    Slow and steady wins the race, as well as taking your emotions out of managing your money. Too many people sit on the side lines waiting to be absolutely sure they will be making money that they invest at highs and bubbles. Then when it collapses they pull their money out and lock in their losses. Instead of buying low and selling high, they bemoan how the market is “rigged” because they screwed up.

    Slow stead accumulation wins the day, and quit trying to speculate your way to wealth. Have a foundation of low cost diversified funds where you accumulate a majority of your wealth at a steady pace and leave it alone for the most part. You don’t get wealth by constantly playing with it any more then you get big tomatoes by constantly digging the plant up and moving it. Realize they will go up and they will go down, but for the most part leave them alone. Oh, and before people start saying “Oh, how did that work out for you?” my net increases in the last 4 years have been approximately 52%, 48%, 25% and 38% (I rounded).

    If you want to speculate then set aside a small amount to do so, but it is gambling more than investing. Do it a few times in practice before actually putting money behind it. Keep a spreadsheet and pretend like you invested those dollars, then track the gains and losses. Realize that it is more about you getting comfortable doing this then actually making great picks consistently.

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