Don’t Kill Your Own Goose

Playing the long game is the moral of the tale.

Do you remember Aesop’s Fables known as “The Goose that Laid the Golden Eggs”?

The moral of the tale is that greed doesn’t pay, and it’s a lesson investors should heed if they’re hoping to achieve future financial security.

Grabbing short-term opportunities means you can end up settling for a small present reward rather than a much bigger one in the future. The phrase “Live for the moment” is great for adding some spontaneity to your life, but not as a strategy for long-term investment success.

In behavioural economics it’s called present bias, when people place far more weight on near-term benefits at the expense of longer-term ones. And that’s the trap Aesop’s farmer and his wife fell into. Instead of settling for a regular source of healthy income from the golden eggs laid every day, they killed their goose, hoping to find a big lump of gold inside.

That wasn’t a great investment decision. But away from fairy tales and in the real world, how do you avoid making the same mistake of killing your own goose?

• Save as much as you can, as soon as you can.

Getting into the savings habit early is the surest way to create capital and long-term financial security. If you spend everything you get each month, you’re not optimising the potential of your earnings. By budgeting properly and squirreling away as much as you can afford, you’re giving your money the chance to earn more money – if it’s invested wisely.

“Bonuses are also a great opportunity to boost your savings pot,” says Sharon Calderini of Pinnacle Wealth Management. “Of course, bonuses should be celebrated and enjoyed, but your future self will thank you if you set aside some of that reward. Topping up regular savings with the occasional lump sum can make a huge difference over the long term.”

• Keep some money in cash.

Ensure you’ve got an adequate emergency fund for unforeseen expenses in the short term. You risk killing your goose if you’re forced to dip into long-term savings to cover bills or unexpected outlays, especially if you need to do it when markets are down.

• Invest wisely.

For the long term, you need to invest in assets capable of generating income and capital growth, such as stocks, bonds and property. Ideally, investments should also be held in wrappers that save you from paying tax unnecessarily, such as pensions and ISAs.

Einstein said that compound interest was the eighth wonder of world. Reinvesting the profits from your investments, such as dividends, can significantly boost the value of your savings over the long term.

“Ploughing back in the income you receive means that money can then generate its own returns,” explains Sharon. “It’s like a snowball-effect and has the potential to really add up over time.”

Of course, investments need to match your goals and risk tolerance, which is why it’s important to seek expert advice. With the right planning and a long-term view, you can keep collecting your own golden eggs for years to come.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.