Your Investment Contributions Should Do The Heavy Lifting

Your Investment Contributions Should Do The Heavy Lifting

Many investors spend a great deal of time choosing the ‘perfect’ investment portfolio on their journey to building wealth. Creating the correct investment portfolio has a massive impact on our expected future investment returns, a critical element of our financial success.

While investment returns can be the difference between a good and a great retirement, they are ultimately out of our control. The best we can do is to position our portfolios for the return we need, but the rest is up to the financial markets.

However, another element contributes to our financial success and is arguably far more important.

Controlling What We Can

Our financial success is based on the investment market returns we receive and on the money we contribute to our investment portfolios.

In contrast to our investment returns, our investment contributions are entirely under our control. The more we contribute to our portfolios, the greater the potential for future compounding growth.

An inconvenient truth for some, this means that our future financial success is largely down to us. Any additional money contributed to our portfolios is a sacrifice of current consumption and an investment in our future selves. The discipline to continue prioritising our futures over our present needs is often the difference between surviving rather than thriving in retirement.

As we journey toward financial independence, it is crucial to recognise that our future security doesn't solely depend on the market returns we expect but also on our contributions.

The Harsh Reality

One common misconception is that investment returns will quickly outpace our personal contributions.

However, a simple calculation shows that assuming regular contributions and reasonable return assumptions, market returns can take up to 20 years to surpass the amount we've contributed.

While returns can contribute to our wealth, our disciplined, regular contributions to our investment portfolios will do the heavy lifting, especially in the early years.

Two Examples

I've observed distinct outcomes among my clients based on their approach to contributions.

Some clients have consistently prioritised their investment contributions, even during challenging economic times. For them, pausing contributions was a last resort, and they instead found ways to adjust other aspects of their lifestyle.

Conversely, other clients paused their contributions at the first sign of financial difficulty, planning to resume them once conditions improved. This period often lasts longer than anticipated, leading to significantly different outcomes than their diligent peers.

Slow Then Fast

It's easy to be lured by predictions of quick riches.

However, understanding the slow and steady nature of investment growth helps us to remain committed to consistent contributions, minimising the risks of falling behind.

We encourage you to reconsider how you perceive your investment contributions. Treat them as your most important monthly expense—an investment in your future self. Prioritise them over other discretionary expenses if necessary. By reframing your mindset, you'll acknowledge the control you have over your financial success.

On the other side of this discipline lies compounding growth that can reward the disciplined investor many times over once it reaches a tipping point. This can result in true financial freedom for you and your loved ones.

Until next time,

Eugénie

• This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
• The value of investments and any income from them can fall as well as rise. You may not get back the full amount invested.
• Past performance is used as a guide only; it is no guarantee of future performance.

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