Savings Rates vs. Investment Returns

Mar 30, 2021

When it comes to investing, most people focus on their rate of return.

However, an often overlooked part of the investment process is the “savings rate.” This is simply how much you’re contributing to your investment accounts.

Earning a positive rate of return is important, but it might surprise you to learn how important the savings rate is.

The chart below shows the value of an investment account after twenty years for someone earning $100,000 per year. The savings rate and rate of return are the variables:

As you can see in the highlighted cells, someone saving 2% of their income earning 10% per year ends up with a smaller balance than someone saving 6% of their income earning just 1% per year.

In other words, the amount you contribute is far more important than your investment returns.

We all want positive returns, but your savings rate is a major factor that can help lead to financial success.

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The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this commentary is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The material has been gathered from sources believed to be reliable, however Think Different Financial Planning cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

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Disclaimer: Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. All allocations and opinions expressed are as of the date of this presentation and subject to change. The information contained herein does not constitute investment advice or a solicitation. Information obtained from 3rd parties is believed to be accurate, but has not been independently verified.

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Think Different Financial Planning cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Think Different Financial Planning does not provide tax or legal advice, and nothing contained in these materials should be taken as such. As always please remember investing involves risk and possible loss of principal capital. Advisory services are only offered to clients or prospective clients where Think Different Financial Planning and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Think Different Financial Planning unless a client service agreement is in place.