With Investing, Little Things Make a Big Difference

With Investing, Little Things Make a Big Difference

The difference between good and great is often found in the details. As discussed in this infographic, a few little ideas can make a big difference in the long run.

First, the equation for growing wealth is actually quite simple: produce more than you consume, and save the difference. Being disciplined and smart means that unnecessary expenses are cut, and any savings can go towards the bottom line. For example, if the money going towards a $4 latte each day was invested, it would amount to $25,994 in 10 years or $440,198 in 40 years. This is based on a fairly ambitious 8% annualized return, but still proves the point.

There are other expenses, including some coinciding with investing itself, that can eat away at the bottom line as well. Keep in mind that the investment industry is designed around taking a haircut off of each dollar spent, and that this money helps employ millions of people around the world. Fees, commissions, and other extras can add up. In the above example, a 1% difference in expenses translates to a $30,000 difference to the investor over 30 years. Keep in mind that the average mutual fund charges a whopping 1.163% in fees.

Related reading: The Myth of the Successful Money Manager.

Two other little things that make a big difference include investing early and proper portfolio diversification. By saving early, those extra years of compound interest can make an impact in the hundreds of thousands of dollars at retirement. By diversifying a portfolio, the example shows that 90% of risk from asset allocation can be avoided.

Original graphic from: Motif Investing