A well-built and carefully tuned investment portfolio can be the engine that powers us towards financial security and a happy retirement. But that can only happen if we feed the portfolio enough cash to power it on that journey.
Think about it. Imagine an amazing investment portfolio, with a return of 10%. If you only have $10 in that portfolio, you’ll earn just one paltry dollar. We’d all love to be millionaires by the time we reach age 65. But that ain’t ever gonna happen if we save only $10 a year.
Some of us are better savers than others. Why? If you ask me, it comes down to mindset – to having the prudence and patience to work towards the long-term benefit.
Consider this survey, conducted by GoBankingRates.com. Participants were asked what they would do if they stumbled upon $10,000:
1. Put the money in savings
2. Invest the money in your current or a new home
3. Invest the money in stocks or a mutual fund
4. Invest the money in a CD
5. Use it to take a vacation
6. Use it to buy a new wardrobe
How do you think people answered? For the most part, the participants leaned towards saving and investing. Only 10% said they would use the money for a vacation, and only 5% said they would stock their closets with new clothes. Whew.
Twenty-five percent reported that they would use the money towards a home, and 5% would use it to buy a CD.
Now for the interesting part. Nearly 40% – almost half of the people polled – said they would keep the money in cash and just put it in savings. Only 17% said they would invest in stocks or a mutual fund.
To make your money work for you over time, it’s best to prioritize funding your investment accounts. Historically, investing in the stock market has proved the best way to build wealth. You could keep everything you save in cash, but history shows you’d probably be losing out. Investing in the market has beat out cash time and time again over the years and decades.
Now I know, it’s easy to get caught up in your day-to-day wants and wishes, but planning for the future should be front and center in your fiscal plan. This means starting to save and invest from the outset of your working life and making regular contributions to your 401(k) plan or IRA. Automating your savings via direct deposit into investment accounts is a great way to impose this discipline on yourself and ensure that your portfolio gets enough gas to take you where you want to go.
