Which is better? Contributions or investment growth?

tax calcMost people rely on growth of their investments to reach their savings goal. But … it depends on how old you are to make that work. Why? Because, compounding doesn’t really kick in until the later years. When you are older (than 45), you don’t have those “later” years anymore. True, what you have saved will compound. But, most people have under-saved … which means they’re short of their target. That means to reach their target it will take more contributions from now on.

Moral of the story: It may seem like the right thing to do when you “chase returns” * … but it actually doesn’t get you to where you need to go as well as simply saving more.

Original blog … Contributions or Returns? Which is Better? … that inspired this syndicated article.

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  1. Feeling you’ve been going fast, and now you’re going slow? | Better Financial Education Blog - August 19, 2013

    […] college, etc.) is the proper benchmark. Most people measure their ability to reach retirement by how big their returns are. Those returns won’t get you anywhere if the amount you’ve saved isn’t enough […]

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