235) Investment Accumulation vs Investment Returns

235) Investment Accumulation vs Investment Returns

 

Let me explain the different meanings as below for our discussion.

Wealth Accumulation means you keep adding new investment or savings to steadily increase your wealth: 
Investment Returns means the rate that your assets multiply in value.

Many investors worry more about their investment returns as compared to wealth accumulation.
In other words, increasing your wealth by accumulation or by multiplying them. The best is to do both. Accumulate and multiply your wealth.
 
What is the difference?
Which is more important?

Investment Accumulation

You keep investing or save your money consistently and regularly. By adding more money, you increase the total amount. Even if you keep the money and have ZERO returns, you will have more money after accumulation for some time.

Investment return

Investors want their investment to give a high return every year.
However, high returns comes with high risks. Depending on the investment types, their returns are according to the risk you willing to take.

For example, investment in stock market may potentially give you 10% return per year.
A Unit Trust bond fund may give you 4% per year.
Fixed Deposit in the bank may give you 3% per year.

Nobody will give you a high return when you take a low risk. If anybody promises you that, be ready to run fast and far. If it is too good to be true, it most probably is.

Which is More Important?

What if you invested your money in a moderate risk investment like a Unit Trust Equity fund.
After 10 years it gave you 300% return. You will have 400% of your money.

Is this a good return? Definitely yes.
Using Compounding calculation it is 14.87% annualized return

Will you have a lot of money and become rich?
Most probably NOT...

Why? 
Because it depends on how much you invested 10 years ago.

If you only invested $1000, you will only have $4000 after 10 years. Nothing much you can do.
But, if you had invested $1 Million, then you will have $4 Million now. This is something you can celebrate for.

What if you invested $1000 and then Accumulate $1000 every month for 10 years. Let's compare how much your investment amount will be under different return rates.

With 0% per year, you will have $121,000
With 4% per year, you will have $148,740
With 6% per year, you will have $165,699.
With 8% per year, you will have $185,165
With 10% per year, you will have $207,552

As you can see, with $1000 per month, you have accumulated at least $121,000 at 0% return.
 
From this case example, you will have more Wealth from Accumulation as compared to going for High Returns. 

It is better to Accumulate Wealth slowly and steadily, then to chase for High Returns investment.

Always remember High Returns comes from High Risk. 

Many people lost everything from chasing high returns investments.
Those who consistently save and invest into a low risk investment will definitely have more wealth in the future.

This reminds us of the Tortoise and Rabbit story.
Slow and Steady Wins the Race.



Wealth Accumulation is like a Marathon race.
High Returns is like a 100m Sprint race

You do not need a high return, 
but you definitely need time 
to accumulate your wealth.

#highlevelrules