Imagine the following two scenarios. In the first scenario, Jack has the opportunity to acquire a goose that lays golden eggs. It will take some sacrifice and a leap of faith to acquire the goose but the payoff could be amazing. But first, he will have to make an important investment decision.
Jack’s investment capital is a dairy cow that has stopped producing milk. He’s been instructed by his mother to sell the cow for cash, which will be put back into the farm that hasn’t been producing so well.
One day, on his way to the market to sell his mother’s dairy cow, he’s offered an alternative investment by a mysterious gent, the cow for a handful of magical beans. The magical beans can supposedly grow into a giant beanstalk that will shoot through the clouds and lead him to a hidden land where he can find a magical goose that lays golden eggs.
As long as Jack kept an eye on the goose, it could provide him and his posterity income for life.
The goose will start by laying one egg a month. But, if Jack takes good care of the goose and takes some of the money from the golden eggs and buys the finest of feed to give to the goose, the goose will steadily increase its output to one egg a week and eventually get to the point where it will lay an egg daily. As long as Jack kept an eye on the goose, it could provide him and his posterity income for life. The goose was immortal. Despite living on the edge of financial despair and in desperate need of the money he could fetch at market for the cow, Jack went with his gut. Long widowed, he wanted a better life for his mom and for her to retire from the farm.
Being an Idealist
Jack was an idealist and he knew the money from the cow would only last a few months. But a magic goose! They would never have to worry about money again. He had to do it. Unfortunately, his mom didn’t share his enthusiasm or optimism. Once Jack told her what he had done, she was livid and threw the beans out the window. Jack went to bed hungry. But, to his surprise, when he woke in the morning, he discovered the giant beanstalk pressed against the cottage and went on his merry way to find the golden goose. After Jack left, his mother also discovered the giant beanstalk next to her cottage and surmised that her son had gone seek his fortune and prayed for his safe return.
After a strenuous climb, Jack did indeed stumble on a magical land at the top of the beanstalk just as the bean merchant had promised. However, the bean merchant left out one important detail. The goose belonged to a revolting giant who also happened to enjoy the taste of human flesh. Jack, inconvenienced but undeterred, seized the golden goose when the giant wasn’t looking and fled for home. Once he became aware of Jack’s treachery, the giant pursued Jack with a burning rage.
Jack fled as fast as his youth would allow him and reached the bottom of the beanstalk with goose in hand. With the giant in hot pursuit thundering down the beanstalk, Jack decided to fell the giant plant with his axe. Chopping feverishly, Jack downed the beanstalk along with the giant. With the giant vanquished, Jack and his mother were finally able to live the life they had always wanted. They demolished their cottage and replaced it with a castle, bought a couple of the finest carriages and lived like kings.
Now imagine the second scenario.
What you don’t know about Jack’s story is that it almost didn’t happen. Harry, who lived just down a dusty mile from Jack, was also on his way to the market the same morning Jack sold his cow. Also, with his mom’s barren dairy cow, Harry was instructed to sell the cow or to make a reasonable trade for some other livestock. Harry left before Jack and was actually the first to encounter the bean merchant. Harry decided the beans were too risky so he rebuffed the bean merchant and went on his merry way to the market. He had many choices at the market including selling the cow for cash, or for a dozen chickens or a young piglet. Harry went with the piglet. He loved bacon. Buy, it would be years before he could enjoy any of that bacon or before he could see any return on his investment in the piglet.
Now let’s put Jack’s and Harry’s experiences in investment perspective. What situation would you rather be in? Personally, I would rather be in Jack’s shoes. Jack went with his gut and made an investment in the beans. It was an alternative investment, unconventional at the time, but one that required a little bit of risk taking. But the risk paid off handsomely. Best of all, his investment paid off immediately. With a golden egg delivered once a month like clockwork, Jack was able to enjoy life immediately from the cash flow. The goose required fancy feed but Jack was able to afford that from the consistent cash flow so he was easily able to cover his expenses and grow his investment as the goose became more productive with time.
Harry, on the other hand, went with a safe investment but not one that would make him rich and one that would not pay out for years. Not only did he tie up his money to purchase the piglet, but the cost of upkeep was substantial because his investment, for lack of better words, ate like a pig. His monthly expenses went towards an investment with no immediate return. The pig required constant attention and its pen smelled horrible. On top of everything, there was no guarantee that the pig would even make it to market. It could die of a disease or get eaten by wolves. So despite all the risks, think about this, even when the pig becomes a hog and can finally be slaughtered and provide a return on Harry’s investment, that return is capped by the weight of the hog. That return is finite.
What can we learn from the two scenarios?
To experience true wealth like Jack, meaning to have a secure future and to enjoy life now, alternative investments with consistent cash flow is the key. This requires taking a little bit of risk and going with your gut. Jack, like other wealthy individuals, discovered the key to true wealth, a cash flow investment. Harry, on the other hand, like many retirees who stash their money away in a 401(k) or static IRA, won’t be able to enjoy their investment for many years to come. And as with most 401(k)’s and IRA’s that are heavily invested in mutual funds, there’s no guarantee that there will even be enough at the time of retirement to sustain you through the retirement years. The stock market can crash as it has in the past and there may be very little to enjoy at retirement if it crashes at an inopportune time.
Don’t you want to enjoy life now?
What use is retirement if you can’t do the things you really want to do? If you like to ski or other vigorous physical activities, wouldn’t you enjoy them more in your 30’s than in your 70’s? To live the life you want now requires investing with a cash flow component. The cash flow will not only allow you to enjoy the activities you love today but also allow you to reinvest in other cash flowing ventures. So to answer the question, ham or eggs? I will take the golden eggs every day. That will require not playing it safe.