Why Proper Investing is Only Half the Battle
Many times, people think that in order to accrue wealth, the most important decision is how they are going to invest their money. While this decision is crucial, it doesn’t tell the whole story when it comes to portfolio performance.
Let’s say you have a portfolio that guarantees you an 8% return annually (the historic return of the S&P 500) compounding every month. If you start with $20,000 and just let it sit there for 40 years, your portfolio will be worth $485,467.71. While this is nothing to scoff at, it is not enough to retire on and certainly not enough to qualify someone as having generational wealth. However, let’s consider the case if you had added a monthly contribution from your paycheck to this account. The average American will earn $55,000 per year on average and a very conservative amount of this to set aside for savings would be 10% or $5,500. That would equate to a $458 contribution monthly. In this new scenario, you will have accumulated $2,084,349.30 after the 40-year period. Most individuals can live comfortably on this amount of money assuming they are invested in the proper financial instruments.
Yearly Return without Contributions
Yearly Return with Contributions
In the second chart, it is clear to see how the small monthly contributions make a serious impact on the overall portfolio value.
Most people think that it is impossible to have financial security by the time they retire and without frequent contributions to your portfolio, it is. However, making conservative monthly contributions to your retirement portfolio can turn this dream into a reality.