How a Greek Slave from 560 B.C.
Can Teach if an Annuity
is right for You.
Aesop's morality tales have always offered life
lessons - even for modern living....
and we can certainly beseech the Greek slave's advice
when it comes to reflecting on an Annuity as a
potential financial investment choice.
A quick study on Wikipedia of Aesop the Story Teller
leads one to speculate on the writers actual origins,
even his ethnicity and even whether he is truly the
sole author of the celebrated "Aesops Fables."
One thing is for certain, however. Whomever is
responsible for writing the infamous vignettes
of animals that think, that speak and display
human characteristics certainly had some
insights into the frailties of human nature.
And, of course, nowhere is this more apparent than
perhaps the authors most famous yarn of the Tortoise and the Hare, a story we all know.
Surely Aesop could not have imagined how his story would be a perfect analogy on how an investor chooses between the steady reliance of an annuity versus the brute strength of the stock market.
But then again, with all the academic and historical studies agreeing that Aesop was a general 'mystery man', who knows what ramifications to his parable he may have had in mind.
So, let's look at the eerie significance of the two animals in the story and how they symbolize our two investment choices for the year 2014, a full 2,574 years after he allegedly wrote his stories. Most of you Ambiguous Annuitants will really appreciate the allegorical symbolism here.
Naturally, the TORTOISE is the annuity !
And the HARE is the Stock Market !
1. THE HARE IS SWIFTER, HIGHER, STRONGER
Sticking with our Greek theme here, the Olympic theme states it perfectly. This is simply not an even match up. The HARE outshines, out excels, outproduces his rival. His genetic nature is defined by speed, manouverability, and nervousness. He bursts with adrenaline and lives to eat, propogate, and then do that over and over again.
Top speed 35 m.p.h.
The TORTOISE on the other hand, is the David in this Goliath drama. He is low to the ground, rarely sticking a head out for a greeting, and reclusive enough to be termed anti-social and dull.
He tops out at an eye-watering .17 m.p.h.
Does it not seem that in 2014, at least, your stocks could do "no wrong" over the past 24 months? The kinds of returns we have seen in the past 2 years have been nothing short of extraordinary. For some of you out there, you could not have been in better circumstances than you have been in.
Why on God's green earth would you consider the lowly annuity with its stodgy performance and "watching grass grow" level of excitement?
2. THE HARE ATTRACTS SIGNIFICANTLY MORE ATTENTION THAN HIS OPPONENT.
Hares propagate more frequently and more visibly. They run fast.
They jump high. There are more of them. They are usually very
busy. They like action. They rarely sit still for long periods. Their
habits are nervous and fitful.
The tortoise is hard to find, or hear. He blends in to the natural
fauna of his environment, and takes great pains to never
command attention. He does not emit any regular audible sounds
and he can sit still for excruciating periods of time. He appears to
not be moving, although he usually is, and imperceptively.
The stock market ticker runs across your tv screen or your
laptop screen. The "market report" end each daily news cycle.
Your broker send you emails on tips and trades. The market
news programs on commercial television blast with activity,
color, noise, movement, excitement, nervousness.
You get your annuity statement once a year. Your agent
might call you once or twice a year. You see your locked - in
interest and index gains, then you smile and simply put the
paper back in the drawer and forget about it till next year.
3. THE HARE RIDICULED HIS OPPONENT.
Of course, he did. After all, the idea is preposterous that a short legged amphibian with a heavy suit of body armour on its back could compete in a foot race with the swiftest of all rodents. It is comical; in fact it is downright insulting to that rabbit.
And this is why the annuity will always be the lowliest of financial instruments when compared to the stock market. It is not fleet footed, it has a heavy protective shell cover, it can tend to plod at the pace of paint drying on a barn door on a summer afternoon. Unlike the whiskered beast, you cannot hear the annuity coming, nor will you even notice it in the green fields around you. It is simply too unassuming. It's like the neighbor at the block watch summer barbecue that you just spent an entire Saturday at, and you only suddenly notice him as you are leaving to go. And how embarrassing you never said hello in the first place!
4. THE HARE LOOKED BACK, SAW HIS OVERWHELMING LEAD.....AND TOOK A NAP !
After all, everyone needs rest, right? I mean, the hare deserves it too.
Surely rabbits get tired, right?
The analogies to this behavioral human syndrome are endless.
Have you ever had a "drip drip drip" in your faucet that you decided to
put off fixing until a more opportune time ......only to return later and
see that the water had overflowed out of the tub and all over the floor?
Do you know what happens sometimes when a hockey team is up 3 goals ahead of its opponent going into the 3'rd and final period? They tend to play defensive hockey. Take less chances. They actually play less hard than the same way that got them 3 goals ahead in the first place.
In meantime, the losing team is also comprised of millionaire competitors who have more than a vested interest in seeing their stock rise as well. And they have nothing to lose by giving it their all, and taking advantage of a reduced offense coming at them.
Obviously the hare did not have the benefit of seeing life from the perspective of a hockey game in the third period.
When do you get comfortable and laissez - faire with your stock portfolio? When it is new and heading up, or when it is sitting at lofty heights. Only you can answer this question. Are you taking a nap beside the hare right now? Were you snoozing in 2001 after 9-11? How about the Sub Prime Fiasco of 2007, were you snoozing then?
Snoozing equates to losing. It did so for Rabbit.
While the rabbit was snoozing, the tortoise was plodding..tick , tock, tick, tock....dum de dum de dum...drip...drip...drip....
5) THE HARE'S PRIDE IN HIS NATIVE ABILITY CAUSED HIM TO FORGET HE WAS IN A RACE THAT HE COULD ACTUALLY LOSE.
Human nature in regards to financial investing is the subject of academic, professional and social study and wonderment.
From personal experience, I have met clients in 2014 who shudder
dismissively at fixed annuity guaranteed rates of return when they can
earn so much more in the market, even though it has taken them 6.5
years since 2007 to reach the apex of what they had once reached back in
Amnesia seems to dull each and every one of us when it comes to a hot
market. Greed and panic prevails. Human nature will probably not
change any time soon.
Until the cycle starts all over again.
That darn rabbit is no more or less human than you or I.
You have to wonder how Aesop got so wise !
6) THE LIFE SPAN OF THE AVERAGE EUROPEAN HARE IS AROUND 12 YEARS.
TORTOISES EASILY MAKE IT TO 100 YEARS; MANY MAKE IT TO 150 YEARS OF AGE.
The British explorer Captain Cook presented to the Tongan Royal family in 1777 a young tortoise named King Malila which became the oldest documented tortoise in recorded history.
"King Malila" died in 1965 at the age of 188 years old.
This second to last moral message is probably the most appropriate..
Tortoises are actually the earth's oldest living creatures.
They seem to have cornered the concept of time better than
any other animal. Their patient, healthy, and steadfast style
gracefully folds into the simple passage of time like an
Correspondingly, the word "annuity" itself is the only financial
instrument whose word actually references that same passage
of time, and in this case, a year, no less. In fact, the word "annuity"
actually references "yearly", meaning "multiple years".
In the same way that the tortoise lives, with the quiet and
measured steps that match the ticks of time itself, the
annuity does likewise.
7) WHEN HARES GET EATEN BY OTHER BEASTS, 100% OF THE TIME THEY ARE NOT LOOKING.
HARES are craved by man and beast alike...such as coyotes, dogs, wolves, bears, hawks, cats, foxes, snakes, large rats...and needless to say, Jed, your neighbor who likes to saves some of his grocery money once a month.
The 2 major crisis in the past decade hit most investors by surprise, even though in the latter case (the Sub Prime Crisis), there was plenty of warning signs. But most people were not looking, just like HARE.
TORTOISES must also have enemies in their midst, but they certainly are not as easy to crack with their rock - hard uniform and their elusive nature. Besides, as far as man is concerned, the tortoise is an endangered species and off limits to hunters in most states and in many countries.
The average fixed, or equity indexed annuity is comprised largely of high rated corporate bonds and of US Treasury bonds, the safest benchmark in investing. There are rules insurers must follow as to prudent management. There are reserves they must keep in place. They strive to maintain high ratings to satisfy new and existing policyholders and investors. It is hard for an insurer to get "eaten by prey" as there are so many safeguards in place.
8) FINALLY, THE WEIGHT OF THE HARE'S GRIEF WAS GREATER THAN THE TORTOISES JOY.
The TORTOISE had already won the race in his head, I am sure, so that when he did cross the finish line, it was a "fait accompli". Not prone to over excitement, not likely to speak out of turn, not one to count his chickens before they hatch, the TORTOISE was destined to arrive at the destination of his choosing, sooner or later, calmly and without fanfare. All in a days work.
It goes without saying that annuity owners, by and large, are a calm lot, not prone to nervousness, excitement, or any serious variation in their mood swings.
On the other side, the HARE'S pride was crushed. His entire self image took a beating. His expected adulation was incongruent with his real behaviour. He was not serious about maintaining a lead over TORTOISE. His overconfidence in his own genetic makeup had made him lazy, sleepy, irreverent and "irrationally exhuberant".
There is no need to make an analogy here between the HARE and the stock market investor after he has taken his beating; it is self evident.
.....SO, IN CONCLUSION....Aesop's timeless fable may or may not offer moral tidbits on what is the right methodology in choosing a long term investment.
Regardless of your convictions on this particular fable, try and make important financial decisions thoughtfully, slowly, and deliberately - you know - TORTOISE-LIKE!
For more analogous comparisons between TORTOISES AND HARES, or more specifically, ANNUITY OWNERS versus STOCK MARKET INVESTORS, see my blog entry entitled "Most Annuity Owners Have Similar Psychological Profiles..."
Thank you for reading.