AAII examines whether wealth is driven more by investment returns or savings behavior, arguing the answer depends on age and time horizon. The paper challenges the idea that older investors should take more risk, showing higher savings rates often outweigh chasing 10% returns in life.
The Impact of Saving Versus Return on Wealth
AAII
Craig Israelsen
Research
12 Pages
Key Takeaways
Compounding Needs Time: Investors starting at age 25 reached $1.26 million with 10% returns versus $819,429 from boosting savings rates to 10%.
Saving Beats Risk: A 55 year old increased ending wealth by over $50,000 through higher savings, versus only $15,073 from raising returns to 10%.
Return Assumptions Matter: A 2% savings rate required a 12.6% annualized return to reach $819,429, exceeding every historical 60/40 portfolio rolling 40 year return since 1926.
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