Investment Metaphor #3: Potatoes Revisited

Apr 7

Apr 7 Investment Metaphor #3: Potatoes Revisited

As I was saying in a previous post, my church held a Passover Seder dinner last night and I had volunteered to bring a bucket load of roasted potatoes. I was one of about five people who were bringing potatoes and we all had the same basic set of instructions on how to prepare them. When we arrived the potatoes I made were combined with those made by the other potato-people, and I was struck by how differently we all prepared our potatoes despite working from the same set of instructions. It occurred to me that this would be the perfect metaphor to appear next in my series on investment metaphors (see here and here for #1 and #2 respectively).

Getting back to the potatoes, I was surprised how differently each of us had interpreted how exactly we were supposed to prepare them. Some people had prepared potato wedges, some had cut the potatoes into eighths or sixteenths, and some like me had diced them fairly small (or brought purple potatoes that very few found appetizing). Not only were there differences in size, but the seasonings and herbs that were used to flavor the potatoes varied also from person to person. I used a basic Italian seasoning mix (the discount one; after all, this is a personal finance blog) while others seemed to use a single favorite herb such as dill or rosemary. There were also differences in the done-ness of the potatoes, ranging from nearly still growing to borderline mashed. Needless to say it was an interesting lesson in human nature and personal preference.

The potatoes got me thinking about investment strategies. As long-term investors we all have the same basic set of instructions: save more, invest well, and diversify your assets. Just as in the case of the potatoes, we investors interpret those basic instructions very differently to suit our own personal preferences. I myself prefer the ease and simplicity of an all-ETF portfolio. Others who have a stronger stomach for risk than I do prefer investing in individual stocks due to the potentially greater returns. Some people like the active management of mutual funds despite their higher maintenance fees. And some people who are not sold on any one strategy even diversify among strategies! The ways of investing are just as varied, and probably more so, than the possible ways to prepare a bag of potatoes.

Part of the lesson learned last night was that these individual preferences didn't matter much when all was said and done (which itself takes a while at a Seder and might be a metaphor for long-term investing!). Regardless of how much we potato-people fretted about how to prepare our potatoes, the Seder still went off without a hitch and we all had an excellent time fellowshipping and remembering Christ as our passover lamb who takes away the sins of the world. In other words, our individual preferences had very little impact as long as we remained focused on the bigger picture. Likewise with investing, regardless of which strategy works best for you, if you save more, invest soundly, diversify your assets, and let the power of compounding do its work, you will end up where in life you would like to be financially.