Be The Tortoise

Take a look at the two hypothetical portfolios below – the tortoise portfolio and the hare portfolio. If you somehow knew in advance that they’d perform as shown, which would you choose?

Most would choose the hare, believing it generates a higher rate of return. And that’s just how many investors and other advisors choose their investments – by focusing on returns and ignoring risk. Such a strategy usually fails – as it does in this example – as the tortoise makes more money than the hare. At the end of five years, a $10,000 investment in the tortoise portfolio grows to $16,105.10 vs. the hare’s $15,785.19.

Not only does the tortoise make more money, it does so with far less risk. Statistically speaking, the volatility of each portfolio suggests a 95% probability that the tortoise in any one year will earn 10% while the hare could LOSE 25%!

Here’s a real-life example showing how the 9% average annual return of a lower volatility market index (U.S. Long-Term Government Bond Total Return Index1) beat the 9% average annual return of a higher volatility market index (Goldman Sachs Commodity Index2) from 1994- 2008 …by over 80%! Please note these examples do not in any way constitute an investment recommendation – as I would never recommend a non-diversified portfolio made up of any one index or asset class – and past performance is no guarantee of future results.