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Both investment returns and savings contribute to the achievement of an investment goal—but only one of those variables is within an investor’s control. A savings goal target should be achievable, no matter the available time horizon.

Over any given goal horizon, an investment balance is the sum of savings (the amount an investor puts into the investment portfolio) plus the investment returns on the total amount invested.

_{Notes: This hypothetical illustration does not represent the return on any particular investment, and the rate of return is not guaranteed. The calculation for the contribution of savings and investment returns was determined as follows: Assuming a fixed 4% real return over inflation and equal annual contributions, we calculated how much an investor needs to invest annually to achieve a given investment goal for different time horizons, varying from 0 years (when investment begins) to 40 years after investment begins. Savings represent the amount invested (the principal). Contributions (in real terms) are assumed to be the same every year relative to the year investing begins.}

_{Source: Vanguard.}

A portfolio’s mix of assets defines its range of returns. A balanced and diversified mix of investments can help an investor reduce overall portfolio volatility and help guard against unnecessarily large losses.

Top 5%, bottom 5%, and average annual returns for various global stock/global bond allocations, 1901–2022

_{Notes: Data are from Dimson-Marsh-Staunton (DMS) dataset for 1901–2022. Annualized nominal geometric returns are in dark green. The 5th and 95th percentiles are plotted below and above asset mixes. Bar length indicates the range, from 5th to 95th percentile, of annual returns for each allocation; the longer the bar, the larger the variability. The numbers next to each bar represent the average nominal annual returns for that allocation for the 122 years covered.}

_{Sources: Vanguard calculations, using DMS global returns data from Morningstar, Inc. (the DMS World Equity Index and the DMS World Bond Index, both in nominal and real terms). The dataset includes returns from Australia, Austria, Belgium, Canada, China, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Russia, South Africa, Spain, Sweden, Switzerland, the United Kingdom, and the United States.}

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. 

Higher costs can significantly depress a portfolio’s growth. While markets and financial returns may be hard to predict, one thing an investor can control is costs. That includes both taxes and investment costs like expense ratios, transaction costs, and sales charges.

Assuming a starting balance of $100,000 and a yearly return of 6%, which is reinvested. Costs may include both taxes and investment costs like expense ratios, transaction costs, and sales charges.

_{Notes: The portfolio balances shown are hypothetical and do not reflect any particular investment. In this example, the accounts return 6% annually, then investment costs are taken at the end of the year. The rate of return is not guaranteed. The final account balances do not reflect any taxes or penalties that might be due upon distribution. Costs are one factor that can impact returns. There may be differences between products that must be considered prior to investing.}

_{Source: Vanguard calculations.}

A higher contribution rate, consistently maintained with discipline, can be a powerful factor in achieving objectives. A higher savings rate can lead to faster goal achievement, even when annual return is less attractive. 

Chart shows years needed to reach $500,000 using different contribution rates and market returns. All scenarios assume an initial contribution of $10,000 and annual contributions of $5,000 to start.

_{Notes: Each scenario starts with an initial contribution of $10,000 made in Year 1, with the first annual contribution of $5,000 made in Year 2. The portfolio balances shown are hypothetical and do not reflect any particular investment. There is no guarantee that investors will be able to achieve similar rates of return. The final account balances do not reflect any taxes or penalties that might be due upon distribution.}

_{Source: Vanguard.}

Vanguard’s four pillars are detailed in our research paper, Vanguard’s Principles for Investing Success . These pillars represent an enduring philosophy centered on giving investors the best chance for investing success. They are designed to help investors stay on track by focusing on the things that are within their control. 

 

 

_Notes:

_{All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.}

_{There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.}

_{Investments in bonds are subject to interest rate, credit, and inflation risk.}

_{Diversification does not ensure a profit or protect against a loss.}

_{We recommend that you consult a tax or financial advisor about your individual situation.}

_{Data provided by Morningstar is property of Morningstar and Morningstar’s data providers and it should therefore not be copied or distributed. Morningstar and its data providers are not responsible for any certification or representation with respect to data validity, certainty, or accuracy and are therefore not responsible for any losses derived from the use of such information.}

_{This document is not intended to provide tax advice or make and exhaustive analysis of the tax regime of the securities described herein. We strongly recommend seeking professional tax advice from a tax specialist.}