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Last weekend I went on an annual trip with my brothers and friends. Every August for the last six years, we’ve gone on what we call the Canoe Trip. We spend a long weekend camping and canoeing on the upper Delaware River. It’s a lot of fun, and there’s extremely spotty cell service. Unplugging from the world in the presence of good company is always refreshing.

Out on the river, somebody noted that its average speed this summer was roughly 3 mph. We figured that with an 18 mile trip, it would take us 6 hours to finish. After taking into account a brief lunch break and pit stops along the river’s edge, that estimation ended up being pretty accurate.

It’s funny because I’d always assumed that our paddling made a huge impact on travel time, but the math begs to differ. I guess we’re not the Harvard crew team after all. The biggest determinant of our success was simply being on the river and having sufficient time to finish our journey. Obviously, our paddling kept us headed in the right direction and away from rocks and other obstacles. I learned that this matters, but not to the extent I thought. In other words, the river did the heavy lifting.

Realizing all of this about our Canoe Trip reminded me of something I discuss with people all the time: the impact of your savings rate vs. the rate of return your investments achieve.

The chart below shows results over a 20 year time horizon with varying rates of return and savings amounts. Generally, the difference in ending values is much greater from left to right than it is from bottom to top.

Savings Rate Heavy Lifting

When it comes to accumulating money, your savings rate is likely to have a bigger impact than your investment returns. Your savings do the heavy lifting.

Nick Maggiulli from Of Dollars and Data came up with a good rule of thumb for investors wondering if they should focus on saving more or investing better:

Nick’s point is that if you can save more in a year than your assets are likely to earn, you should be more focused on saving. He goes on to explain that his rule provides guidance on a spectrum. It is not meant to imply that you can ignore your investments or your savings rate.

On our Canoe Trip, my friends and I obviously relied upon the river’s current a great deal, but we also would’ve been in trouble if we didn’t steer and paddle through rapids. Both aspects were important, but one had a disproportionate effect on our outcome. It’s cooler to believe our heroic paddling and expert steering techniques got us to where we needed to be, but realistically they didn’t matter all too much.

For many investors, especially those in their early years, their savings rate will carry the load. Investment returns matter, and matter more as the nest egg becomes bigger, but their importance is dwarfed by saving money. It’s more interesting to discuss investment strategies that are designed to increase long term returns, but without a solid savings rate, they won’t matter much at all.

Morgan Housel put it perfectly in a recent post:

“Building wealth has little to do with your income or investment returns, and lots to do with your savings rate. Fortunes can be blown as fast as they’re earned – and often are – while others with modest incomes can build up a fortune over time. Wealth is just the accumulated leftovers after you spend what you take in. And since you can build wealth without a high income but have no chance without a high savings rate, it’s clear which one matters more.”

On our Canoe Trip, the current was a bigger deal than our paddling. For investors, their savings rate is likely to be a bigger deal than their investment returns. Try to identify which factor in any equation performs the “heavy lifting”, and make it your focal point.

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