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Updated October 27, 2023

Slow and Steady Investing Wins the Race

Slow and Steady Investing Wins the Race

Slow and Steady Investing Wins the Race

AJ Giannone, CFA

Bill Chen, CFA

Personal Finance

You have most likely heard the expression "slow and steady wins the race" from the popular children's story "The Tortoise And Hare". A relatable lesson that small steps over time can tackle the most difficult challenges. It also carries significant advice for our financial lives. That despite success stories of overnight millionaires with cryptocurrency or NFTs, slow and steady investments over time remain one of the most effective ways to make money.  

Overnight Success Stories Are the Exception, Not the Standard

Many headlines on financial achievement cover a tiny fraction of extremely lucky individuals who found success investing in GameStop at the right time, buying bitcoin years ago, or selling an NFT at the perfect time. These success stories feed our need for instant gratification and exacerbate our fear of missing out. However, when studied, those people made insane bets the average person couldn't afford and cannot be repeated.

Despite how many classes, courses, or books those people wish to sell you their secrets, you can never recreate the luck that helped them succeed. Otherwise, everyone would be millionaires.

Historically, Proven Ways to Make Money Aren't Sexy

Historically, there are proven ways to make money. For example, the S&P 500 is often considered the benchmark measure for annual stock market returns and has returned 10% per year for nearly the last century (before inflation). While that's not very impressive compared to an overnight millionaire success story, it is attainable for the average person. 

Truthfully, this is one of the most popular ways for the average person to increase their income. Over 56% of Americans own stocks, and that number jumps to 89%, with households over $100k. This is why many financial experts sing the praises of "slow and steady wins the race."

Slow & Steady Wins the Race in Compounding

What makes the slow and steady stock market such a powerful money-making tool for the average person is the power of compounding interest

Let's look at Samantha, a 25-year-old who has $6,000 in her bank account and wants to invest that money into a well-diversified ETF until she retires at age 67. Here's what the power of compounding interest could look like:

  • If Samantha only invested $6,000 and never added an additional penny. With an annual investment return of 6% over 67 years, her investment would grow to $74,000.

  • Suppose Samantha invested $6,000 and added smaller contributions of $500 every month. In 67 years, she would have put in a total of $252,000. Yet with an annual investment return of 6% on the money and her additional contributions. Her investment would have grown to $1.2 million. 

  • For fun, if Samantha invested her $6,000 and additional smaller contributions of $500 every month. However, the average return was 8% instead of 6%. With the power of compounding interest, she would have grown her nest egg to $2.25 million. 

In the difference between $74,000 and $2.25 million, you can see that the slow and steady method is compelling. It's enough to turn Samantha and her small investment into a millionaire by the time she retires. It's not an overnight success story that'll make headlines, but it's slow and steady wins the race strategy that most Americans utilize without relying on luck.

Time in the Market Vs. Timing the Market

If you're investing for the long term, and that's often the best strategy for most investors, there is no best time to start. Meaning regardless of whether the stock market is up or down, the sooner you start and the longer your money is invested, the better you’ll do. 

Many beginning investors are hit by paralysis by analysis, trying to get into the stock market at the right time, often causing them to hold off investing. Realistically, no one knows what the market will do. It could dip the moment you invest or skyrocket in an instant. 

Over time, the stock market has grown 7% - 10% annually. So while you may see an initial dip after you invest money, you can find comfort in knowing the stock market grows over time. That's why "slow and steady wins the race" is so profound in investing for retirement.

Small Changes Make a Big Difference

If you resonate with the slow and steady strategy to building wealth over time but don't have $6,000 like Samantha to start today. You are not out of luck. Many investment platforms allow you to begin with just $10, and any monthly contributions you can make now will make a world of difference in the future.

It's not always about trying to make more money, but saving your existing cash is one of the easiest ways to start. Little things like eating out less or reading books from the library instead of streaming subscriptions can help reach essential savings goals. Much like the power of compounding, saving in tiny areas of your life can free up a lot of money to invest in your future. So take those slow and steady steps now to improve your future dramatically.

Allio is here to help you work toward your financial goals. We offer a unique blend of investment options tailored to your lifestyle and financial goals. Choose one of our fully managed portfolios for hassle-free investing, handled by our team of experts. Prefer more control? Our dynamic macro portfolio option puts the power in your hands. We’re not your typical finance firm. Gone are the days of exclusive, complicated investing. We're here to make your financial journey approachable, transparent, and most importantly yours. At Allio, we’re shaping the future of investing.

Whether you’re seeking an expert team to manage your money or looking to build your own portfolios with the best financial technology available, Allio can help. Head to the app store and download Allio today!


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