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.