When you’re building an investment portfolio, you might feel pressure to choose the “perfect” investments for you. After all, the balance of your portfolio could have a significant influence on the potential returns you can expect, in turn affecting how easy it is to achieve your financial goals.
Though returns are undoubtedly an important factor in your wealth accumulation, the fact remains that they are ultimately unpredictable and outside of your control. All you can do is follow the key principles of investing to give your portfolio the greatest chance of benefiting from market returns while mitigating risk.
Fortunately, though, there is another factor to successful investing that is firmly within your control. Read on to learn more.
Focus on what you can control rather than on what you can’t
There are two factors that influence your financial success:
- The returns your investments generate
- The amount you contribute to your investments.
Though you can’t control the returns your portfolio could generate, you can control how much you contribute to your portfolio each year. Generally speaking, the more you contribute, the more opportunities your portfolio could have to benefit from market returns.
This means that, far from being left up to fate or chance, your financial success is up to you. By making sacrifices in the short term, you could contribute more to your investments and improve the chances your portfolio has to grow your wealth and help you achieve your goals.
It could take around 20 years for the returns on your portfolio to outstrip your contributions
It’s a common misconception that investment returns will quickly outpace the contributions you make to your portfolio. In reality, it could take up to 20 years for this to happen if you make regular contributions and assume reasonable annual returns.
While returns are important, it’s your regular contributions that will usually have a greater influence on the growth of your portfolio, particularly in the early days of your investment journey.
Our experience suggests that those who prioritise investment contributions are more likely to achieve their long-term goals
In our experience of supporting expats in achieving their financial goals, we’ve noticed different approaches to investment contributions.
For some, investment contributions take priority, even when economic or stock market conditions are challenging. Rather than pausing their deposits, which they consider a last resort, they find a way to adjust their lifestyle.
Others are less disciplined and prefer to stop their contributions when conditions become challenging. Although the plan is always to resume contributions when conditions improve, volatility can sometimes last longer than anticipated.
Pausing contributions for an extended period of time can lead to a significant shortfall later on compared to those who continue to contribute to their portfolio.
Investment returns often fluctuate, but keeping a positive mindset can help you stay consistent with your contributions
Volatility is part and parcel of investing on the stock market, so any promises of high returns without risk are misleading at best and damaging at worst.
Instead, take your time to understand how investment growth has typically occurred according to historical data and trends. Doing so can help you stay focused on your role in your wealth accumulation.
One way to reframe your perception of your investment contributions is to view them as a monthly expense and a non-negotiable investment in your future happiness. This clever mindset shift can help you feel more in control of your own financial success. It could also give you a greater chance of benefiting from compound returns over the long term.
If you can adopt this positive financial mindset, you can feel reassured that you are much more likely to achieve your financial goals.
