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A Tale of Two Frogs

You probably weren’t expecting a blog post about frogs from a financial planner, but bear with me!

Once upon a time, there were two frogs who lived in the same river. Living in the river was tiring, there was always a current to navigate as well as fish and birds who wanted to eat them. On top of this, once in a while there were storms and floods where the water became choppy and uncomfortable to live in.

After a particularly bad storm, one of our frogs (lets call him Fred) had had enough. He jumped out of the river and found himself in a small pond. This pond was incredibly still, was sheltered from the storm and there were no fish trying to eat him. It felt like a real safe haven. Fred was happy!

Our second frog (lets call her Florence) stayed in the river.

For a while, Fred looked out at Florence and felt really quite smug. Florence was still negotiating the dangers of the river and it looked really quite stressful. However, Florence was also gradually moving further down the river. Although Florence was making more progress than Fred, he was happy because he didn’t have a stressful journey.

What Fred didn’t realise was that he had jumped into a pot of water that was over a fire. Gradually the water temperature rose (without him realising) until Fred died.

This story illustrates the journey that can happen in investing. The stockmarket (i.e. the river) can be a choppy place, especially during a storm. Cash (i.e. the ‘pond’) can seem like a real safe haven that takes away the choppiness and stress. However, inflation (i.e. the fire) will slowly destroy your ability to meet your goals and kill your financial potential.

Most conversations I have with people around risk centre around the risk in the stockmarket. Especially with Brexit, these conversations have been even more prevalent. However, when planning for a future that can be 20, 30 or 40 years long, the single biggest financial danger is inflation.

What makes it the biggest danger? Personally I think it’s because it sneaks up on you gradually. It’s only really noticeable once it’s happened, by which time it’s too late to protect against.

We work with each of our clients to navigate the dangers in the river and protect against the slow boil of inflation. If you would like to have a conversation about frogs and navigating the river, please get in contact.