top of page

The path to riches: The fable of the magic box


It was Christmas day in the Forde home and the family were sitting at the dining table eating a glorious Christmas dinner. Turkey, ham, buxty, roast potatoes, roast carrots, sprouts, and more dishes too numerous to mention; but, not all members of the family were happy.


The son complained to the father about how hard he was working for a very average pay packet. He hated his job and wished he was wealthy so that he could give up work.


He asked his father how he had become rich and had been able to stop working and retire at a young age. What was the big secret?


The father laughed and said that he wasn’t rich, but went on to explain how, many years ago, a wise man had told him about the existence of a magic box. If you put money inside the magic box and closed the lid, then when you opened it, the money would have doubled in value. Not only that, but if you left the money in the box for longer, it would continue to multiply.


This story angered the son. Was his father saying that he had magical abilities and a magic box?! That was ridiculous! The stuff of fairy tales!


The father said that he had not believed this crazy tale when he had first heard it, but he spent a long time searching for the magic box, listening to other wise men, and gathering clues until one day he did find the magic box and used it over the years until the day came where he was rich enough that he no longer needed to work and could do as he pleased.


The son was quiet for a time and then asked his father if he could see this magic box. The father said of course he would show it to his son and he would happily share its secret. He told the son to go down into the cellar, open the big wooden trunk, and in there he would find the magic box. Off the son went, down into the cellar where he found the big wooden trunk, and there he found a dusty cardboard box which he took back to his father.


The father took the dusty cardboard box and as he opened it explained to the son that the magic didn’t work for everyone. Only people with patience, able to learn, plan and live intentionally could invoke the magic of the box. The father opened the box and lifted out what looked like pieces of paper…bank statements.


The son looked confused, but the father went on to explain that everything he had told his son up to that point was true, except for the fact that the box was not magic, but the box would truly double your money.


The reality was that the box represented his pension and the papers contained in the box were in fact pension statements telling him how much was in his pension.


The father explained that, if at the beginning he had talked about the benefits of investing in pensions and ISAs and the power of compound interest, the son would probably have gotten bored very quickly and changed the conversation, but now, hopefully, he was interested enough to find out more and become rich in his own time.


By putting money into a pension with employer contributions, the son could double his money immediately. He would also get tax relief immediately which again increases the value of his money. Then, over time, the money invested in low-cost global index funds would grow tax-free with the added benefit of the true magic of compound interest.


The father left the son with one final thought. If a magic box did exist then everybody would be fighting over it. Everybody would want to own a magic box. Yet the magic box does exist, it is just that many people do not appreciate how the box works and have not got the knowledge or patience to make the most of what they have.


It’s not magic. You can’t access a pension until age 55, so over the long term, the value will grow exponentially. Even if you don’t pay in one month or one year, the money already paid in will continue to grow. You can continue to pay into it next month or next year…the magic does not go away!


The truth is that anyone can have a magic box if they can budget, spend intentionally, find the money to put into a pension, and have the persistence to buy and hold and stay the course.


Eventually, they could retire when they wanted to, and use the 4% rule and the bucket strategy to provide an income for life.



Comentários


bottom of page