When discussing the different personal finance animals, we took quite a harsh stance on the rattlesnake. Looking back, I thought it would be a good idea to discuss them a bit more, and explain why there is such a harsh attitude. There are some good points to the rattlesnakes. The fact that they carry very little debt, if any is certainly a great quality, and something many people strive for in their personal finance goals. The biggest issue is that they leave too much on the table for their own good. Below is a side-by-side comparison of the tiger and the rattlesnake, and their financial decisions:
|Interest Rate – Savings/Checking||1.5%||0.0%|
|Real Compounded Average Investment Return (Tiger – Stocks, Rattlesnake – Gold) 1980-2010||7.7% annually||0.3% annually|
|Value of spending rewards||1.75%||0.0%|
The worst part of this is how much money the Rattlesnake loses to inflation. Notice in the second line of the table, we’re using Real Compounded Average Investment Return. This means that, after adjusting for inflation over the time period, this is the growth of the investment. In the meantime, over a 10 year period, the Tiger has seen his investment grow to more than double in terms of real value, while the rattlesnake would have been better off keeping his money in Treasury Inflation protected securities (TIPS) that provide a protection from inflation a small premium (normally ½ of 1%, or 500 basis points).
The most important thing to take away from this is that the rattlesnake doesn’t just hole up in his house every day and skip work from fear that he’s going to get hit by a bus, but he does that exact thing with his money. If the rattle snake sent his money to work, it would mean that soon he would be able to be the one that stays home.