Cheap Tricks Never Last - The Donkey of Guizhou

The Donkey of Guizhou

Years ago donkeys were not found in Guizhou Province until someone with more riches than sense shipped one to the province. 

One day, a tiger was looking for something to eat, when he saw the strange animal. The huge newcomer frightened him so he hid between the bushes to study the donkey. It seemed harmless enough so the tiger came drew near to the donkey to have a closer look. "Hee Haw­" a loud noise burst out of the donkey, which sent the tiger running away as fast as he could. The humiliation stung him and he resolved to come back to that strange thing.

The next day when the tiger got too close the donkey brought his unique skill to bear on the offender he kicked out with his hind legs. After several bouts, it became very clear that was all the donkey had. The tiger jumped upon the donkey and cut its throat.

This story was used to warn about people's limited tricks. A western counterpart would be a one trick pony or humorously enough a paper tiger - appearing more fierce than they are.

While this fable doesn't seem to directly relate to finances, fables are life lessons. In the fable the warning is about only having limited tricks, and that is the same problem that many peoples finances are in.  All the umph in just a few tricks.

Most people have a large amount of money in their house, their 401k and then Social security - which most of us youngsters discount. Two of those three are investments, they have returns that you get (and in the case of Social Security hopefully get), the first is not. A house is an expense that can appreciate in value. Now this Hee Haw of a purchase is a darn good one when done right - good neighborhood, growing city, motivated seller - it can also be one of those things that drains the family coffers when done wrong - bought before selling or renting old home, lots of new builds hitting the market, Bigger than the family needed.

The 401k is where low cost index funds gets preached yet that is rarely what is available to invest in. Also when I look at the expenses for the funds in my 401k vs a normal IRA they are magically .3% higher than a similar fund not in my 401k. That is how the plan managers 'afford' to offer those funds to your company for 'free'.  If you take your 401k it can be quite the kick but if you chase yields after the hot funds that performed really well last quarter you will be amazed at how - over the long term - those returns don't look all that hot. An index fund lets you fight with all the tricks of the companies in that index which can pack quite a wallop over the long term. Watch out for those fees those because just like the tiger ate the donkey in the end, those fees are the way that financial institutions eat your retirement.

What I love about modern finances is how many tricks those index funds have. If you aim for Bitcoin, Gold, Silver, Tulips etc when that one market goes down the drain so does your one trick. If instead you focus on investing in how sneaky humans are (we are quite sneaky) that two trick pony gets quite powerful over the long haul, powerful enough to kick the retirement paper tiger quite squarely in the jimmy junk.