When it comes to dividend investing, retirement, or any other investment related topic we as investors are always very focused on the return we are going to generate. What is the historical return of the stock market? What is my estimate for how the market will perform over the next 25 years. What rate of return do I need to hit that magical $1,000,000 portfolio value? These are all questions I have asked over and over again in my investing experience. However, it is not the most important thing we should be focusing on. [ad#tdg-embedded]
Instead, we should be focusing on the thing we can control the most. No, not asset allocation or buying dividend stocks! I am surprised that it never really hit me this strongly before. Instead, it is highlighted in this Morningstar article. It goes like this:
The more money we contribute to our investment accounts, the more money we can have in the end!
In this image from the article, we can see that for the various scenarios, our contributions make up the bulk of our portfolio in the end. Take the 6% market return as an example. In the 10 year time horizon section, 73% of the portfolios terminal value is made up of contributions made by the investor. When it goes out to 20 years, it is not as dramatic but still significant. 52% of the terminal value is made up of contributions. They way I interpret this is that if I as an investor had invested more money along the way, I would end up with more money.
Seems too simple doesn’t it. Sure, the market can have a real run of bad luck and actually lose us money, but we never really do know. The best we can do is contribute as much as possible to our retirement accounts, set up the right asset allocation to manage our risk, and just let the market do what it is going to do!