Updated: October 27, 2023
Once upon a time, a powerful wizard created two magic boxes. They’re magic because they can make money instantly appear inside.
The powerful wizard randomly chooses one person every three years and gives them those boxes. When the 3 years have passed, he’ll take them back and choose the next lucky person who will get those boxes.
Today, the powerful wizard chose you.
“Salutations from the land of magic!” he greets as he appears before you.
“Today, I’m presenting you with a gift,” he says. “Two magical boxes, each with different abilities to create wealth. Choose one and you’ll have it for 3 years.”
He then goes on to tell you about the two magic boxes.
BOX NUMBER 1
This box has a P1,000 bill inside and every month, the money inside it doubles in value. This means after 30 days, the box will have P2,000 inside. Give it another month and you’ll see P4,000 – and so on.
One great thing about magic box number 1 is that you can take the money inside anytime. However, once you do, its magic ability stops, and I’ll immediately come back to take it back from you.
BOX NUMBER 2
This box also has a P1,000 bill inside, but the magic is different in this one. Every single day, a new P1,000 bill appears inside.
This means tomorrow, there will be P2,000 total inside. Then the day after tomorrow, another one thousand bill appears and you’ll have P3,000 total – and so on.
However, magic box number 2 has one rule, it will remain closed for three years and you can only open it to take the money one minute before I finally take it back.
Which box will you take?
You started to do calculations, and came up with this after a few minutes:
It seems that box number 2 is a better choice, but you realized that this is not complete because you will have your chosen box for three years.
So you continued your calculations and finally had this:
Choosing is just the first step
It is clear, the best choice is box number 1.
But ask yourself… will you have the patience to wait 3 years?
Will you be able to resist the temptation to leave the money in box number 1 untouched, knowing that you can just get it anytime?
Have you ever thought that maybe, just maybe – choosing box number 2 would be better for you because it eliminates that temptation? That at least, you are assured of a million pesos by the end of 3 years?
It’s easy to say now that you will have the patience to wait, but the result can turn out to be different in real life for two basic reasons.
Because you don’t have financial protection
What if after 6 months, you had an accident and needed to be hospitalized? Without health insurance and an emergency fund, you will have no choice but to probably take and use the money inside the box.
Because you don’t have the financial discipline
After a year, there are already 4 million pesos in the box – enough to probably buy a nice house for your family. The temptation to take the money just grows stronger every month and without discipline, you’ll eventually give in and take the money prematurely.
Successful investing is not just about the numbers
Magic boxes are all around you – time deposits, pooled funds, the stock market, real estate, and many others that are just waiting to be chosen.
But investing is not just about knowing which magic box to take, but it’s also about having a strong financial foundation and the proper mindset to reach the finish line.
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Photo credits: anvica and erink
Gotta agree about proper mindsetting. I mean it’s hard enough to keep disciplined when your magic box keeps your money growing. But it’s especially difficult when you can lose money, like what’s happening now.
It’s only been a few weeks since I began investing and there has NOT been a single day when my portfolio is GREEN. It takes so much self control to not sell everything and cut my losses!
Good thing about starting while you’re young is the ability to handle the perceived losses, since there’s so much time to bounce back.
Thank You Fitz.. 🙂
Yes, I Agree! Investing is not just about the numbers, it’s also about mind setting & discipline because “Investing” is looooooooooong term. Meaning, we need to wait for a long period of time to make our money grow. Thank you for this reminder, Sir Fitz! 🙂
Oh my gosh i thought box#2 yields more… it pays to be diligent.
I think it is important to believe in fundamentals. Once the fundamentals – The business model, management and financials are in place, it is usually a keeper. If the buy is not based on these fundamentals, then maybe it will be wise to review your portfolio and see if it make sense to cut losses.
Nicely described. There is always some sort of temptation around us when it comes to investing. There are scams too. Numbers have nothing to do with success.
@KD: I think it’s normal to see your portfolio NOT green for a couple of months especially when you are starting. It also happened to me. When you sell the stocks when they are RED, you certainly will make losses. But if you wait till they GO up, then that’s the time you will make GAINS. Just be patient and continue investing. 😀
I think the most common temptation, at least for me, is seeing my colleagues and friends trying new restaurants, buying new stuff and going to new places. The urge to forego gratification is very strong! However, I have developed self-discipline through the years and I hope I can make it when I make my first million.
It also helps that I make mental pictures of my future daily. It reminds me of the things that I need to do. And that is why I am able to control myself into temptations and continue saving and investing for my future. 🙂
I had money sleeping in the bank for 1 year before I decided to take it out and transfer it to a mutual fund. I’ve been regularly adding up funds since then. 7 months later, it’s already earned 10x more than what it earned in the bank for 1 year. I think I switched to the right magic box. 🙂 eyes on the prize!
Excellent teaching in this post! I have used a little different version called “the pennies a day allowance plan” to teach the concept of compounding to young folks and new investors. Instead of one US cent (a penny), substitute a one peso coin and do this. Start with one cent and double it each day for one month. at the end of the mouth everyone is truly shocked at what the ” allowance” will be each day. If only each and every stock, ETF, and option trade would double on schedule like the pennies a day plan!!!
Is there a way to access your other worhtwhile and eye-opening posts in this Ready to Be Rich blog? Thanks a lot, Sir Fritz!
Here’s the link to the archives: https://fitzvillafuerte.com/archives