6 Lessons from Alice in Wonderland

By Robin Applegarth CRPC®

Does the world of investing and money seem like a mysterious place? You may feel like you’ve dropped down a rabbit hole into a strange land of creatures with names like TIGR, GNMA, and LURMS.

Lewis Carroll, the author of Alice’s Adventures in Wonderland, and Through the Looking Glass, was a mathematician and logician of the 1800s. His inventive tales are full of financial metaphors. Let’s tour Wonderland and see what its odd creatures can tell us.

At the beginning of the story, a white rabbit dashes in front of Alice. He’s carrying a watch and declaring “Oh my ears and whiskers, how late it’s getting.” Time and lateness are themes that twist and bend through this fairy tale.

1) Keep time on your side. If you’re over age 30 and haven’t started saving for your future, you’re late too. The time value of money makes it much more efficient to save early.

Today’s Alice (we’ll call her Allison), will find that time can be a magic fairy dust for investors. How is this? If Allison starts saving $200 a month at age 25, earns 8% a year compounded, and saves for 30 years (until 55), she’ll have $612,103 by the time she reaches age 65. If she gets distracted by following muttering rabbits and doesn’t start until age 35, she’ll only have $283,522, or $328,581 less.

No, this is not a hazy dream from a hookah-smoking caterpillar. She would have contributed exactly the same amount, but because she started 10 years later, the earnings had less time to grow. The ability of money to mushroom over time is called “compounding.”

Whatever your age, if you can give savings 20 plus years to grow, you’ll be a richer rabbit.

2. Ignore the jabberwocky, and invest in things you understand. Alice met many strange creatures on her journey—Tweedledee and Tweedledum, talking cards, and a Mad Hatter. Most of them spoke nonsense, warnings or in riddles.

Our modern Allison lived through the economic downturn of 2008-09. It too was marked by warnings and confusion. Bankers touted complex mortgages. Wall Street sold entangled derivatives, and used financial language that sounded like jabberwocky. Where was the money? Your guess was as good as the Dodo bird’s.

Be sure you understand where you’re putting your savings. Ask questions, and learn something new. That way you’ll know that TIGRs don’t bite—they’re Treasury Investment Growth Receipts. GNMAs are tame Govt. National Mortgage Association bonds, and LURMS…well, they’re imaginary.

3. If you don’t know where you’re going, get directions. In the story, Alice eventually wandered into the deep woods. Here, at a fork in the road, she saw the elusive Cheshire cat, and asked him which way to go. He told her, “If you don’t know where you’re going, any road will take you there.”

Don’t get lost in the forest of finance. Find your purpose and choose the clearest path to reach it. Good financial advice can provide you with “maps.” Or, you can get help from a financial professional. It’s best to choose a fee-based advisor rather than one who earns only through selling you something on commission.

4. Free lunch? It’s probably an illusion. In Wonderland, the Mad Hatter invited guests for tea, and then directed them to sit down to a plate of crumbs.

The Mad Hatter is a Bernie Madoff-type character running pyramid schemes. He takes from one and passes it to the next (with big cuts for himself of course). The Mad Hatter got the best food at the table.

Another character in the story tells Alice, “The rule is, jam tomorrow and jam yesterday, but never jam today.” One could substitute “money” for “jam” in most sticky pyramid schemes or get-rich-quick investments.

5. Stay involved with your finances. In the story, Alice also met a smoke-ring-blowing caterpillar curled up on a giant mushroom. This philosophical creature didn’t want to be disturbed by Alice or the rest of the world. He’s symbolic of the “avoider” who doesn’t want to be bothered with taking care of his/her money, and hopes it will magically grow. Unfortunately, lack of attention can make money go up in smoke.

6. Avoid the mad queen and the clutches of debt. No tour of Wonderland is complete without visiting the Red Queen. While most queens are benevolent, this one is a harpy. Her frequent command is “Off with their heads!” Her subjects cower before her harsh edicts. The Queen presents one of the main obstacles on Alice’s journey. She could easily represent domination by debt–an uneasy life indeed.

Our current-year Allison is taking steps to build financial security, so she can avoid the clutches of debt. She’s learned that credit cards have to be used sparingly, and paid off each month, or they can bite. She saves regularly, has a comfort-cash fund for emergencies, and learns something new about personal finance monthly. She’s discovered that the journey to financial freedom begins with small steps, taken repeatedly.

Alice in Wonderland is an allegory of being a stranger in a strange land. It’s about questioning who you can trust, and how to find your way “home”—to that place where you can live your ideal life.

What steps will you take today toward that goal?



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