Many investors obsess over choosing the ‘perfect’ investment portfolio.
After all, getting this right has a major impact on your expected future returns, a critical element of our financial success.
There's just one slight problem with this...
While investment returns can be the difference between a good and a great retirement, they're ultimately out of our control.
They matter, of course.
You should position your portfolio for the return you need.
But the rest is up to the financial markets.
There is, however, something far more powerful you can control.
And it's arguably far more important.
The real game-changer
While we know a lot about investment markets, returns are a bit like British weather - unpredictable and impossible to control.
The one thing you can control, however, is your behaviour.
Repeatedly I’ve seen that it’s not the return on the investment that’s important so much, as whether the investment was ever made in the first place.
Money in cash or fixed deposits means your future purchasing power is being decimated by inflation.
Inertia, fear, procrastination, and bias toward the status quo all feel natural behaviours as we think about our futures.
But you can control the money you put into investments that outpace inflation over time.
The more you contribute to your portfolio, the greater the potential for future compounding growth.
An uncomfortable truth for some, because this means your future financial success is largely down to you.
Every pound or dollar you invest is working hard for you, when you need it.
It's that simple.
Yes, you're sacrificing something today, and investing in your future self.
But the discipline to continue prioritising your future over your present needs is often the difference between surviving, rather than thriving, in retirement.
The harsh reality
A 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, it can take up to 20 years for market returns to overtake your personal contributions.
While returns can contribute significantly to our wealth, in the early years, your disciplined behaviour/saving does the heavy lifting.
Not fancy market predictions.
Just you, consistently putting money aside and investing it wisely (in all the great companies of the world).
Two examples
The team and I have seen distinct outcomes among our clients, based on their approach to contributions.
- The committed: They prioritise contributions, come rain or shine. When times get tough, they find creative ways to keep investing. For them, pausing contributions is a last resort, and they instead find ways to adjust other aspects of their lifestyle.
- The hesitant: They pause contributions because of other spending priorities OR at the first sign of financial trouble. "I'll restart later," they say. But this period often lasts longer than anticipated, leading to significantly different outcomes than their diligent peers.
Reframe your thinking: slow then fast
It's easy to be lured by predictions of quick riches.
But, understanding the slow and steady nature of investment growth helps us to stay committed to consistent contributions, minimising the risks of falling behind.
So, reconsider how you think about your cash holdings and investment contributions.
Treat your investments like your most important monthly bill.
Because they are.
They're an investment in your future self.
Prioritise them over other discretionary expenses if necessary.
Follow the 50/30/20 rule where you can.
By reframing your mindset, you'll acknowledge the control you have over your financial success.
Because disciplined saving has a magical tipping point.
Keep going, and compound growth becomes your silent partner.
The reward?
Genuine financial freedom.
For you and your loved ones.
Small steps. Big impact.
