What should you know?
Investing and growing your wealth is an essential discipline to secure a comfortable financial future. But, how much do you need to invest, and at what rate does it need to grow to achieve your goals?
The answer depends on what your objectives are, but the chart below provides a rough guideline of the wealth that can be accumulated over a 25 year investing window, based on different levels of monthly savings and investment returns:
The amounts in the table have been adjusted for a 2.5% annual inflation rate, reflecting their true value in today’s terms. It also assumes that contributions increase at 2.5% each year.
This approach more accurately represents the commitment needed to grow wealth effectively and to beat inflation.
Why should you care?
People often underestimate how much they need to invest to afford a secure and sustainable retirement. Many also neglect to increase their investment amount over time, mistakenly assuming that the same fixed investment contribution will be enough years down the line.
Building wealth involves focusing on five key actions:
1. Expand the gap between your income and expenses.
2. Invest the difference in a globally diversified portfolio containing the great companies of the world, allowing it to compound over time.
3. Maintain consistent contributions for as long as possible. When you have additional savings (e.g., an annual bonus), invest those funds as well.
4. Increase your investment contributions every year or two to account for pay raises and inflation.
5. Repeat steps 1-4, and stay committed through all market cycles.
Don’t allow short-term market movements, sensational news stories, or “get-rich-quick” schemes to distract you. Meaningful wealth is built by maintaining consistent, steadily rising investment contributions over the long term.
