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The Power of Saving Thumbnail

The Power of Saving



To me, one of the most troubling things about this year has been the complete lack of control. For millions, this has meant job loss, health scare(s), and/or other totally unforeseeable pandemic trouble. Human beings crave certainty, but the reality is that we live in a consistently uncertain and risky world. COVID-19 has been an unfortunate reminder of that fact. In that sense, financial markets are much like the real world – volatile, fast-moving, unpredictable. We do our best to analyze the data, build robust portfolios, and make thorough plans, but the reality is that we are often at the whims of markets we have no control over. And that is why among all the numbers we could crunch, the most important is your savings rate. Simply, savings rate is the amount (as a % of income) that you set aside to invest. That’s it – save more over time, compound those savings, and retire bigger later. We show an extreme example below, where a hypothetical “big saver/bad performer” ends up with a bigger nest egg than her bizarro-world counterpart. This example uses some unrealistic assumptions (investors can save diligently and have higher returns than 1%!), but it goes to show the power of what’s in our control.

And while I’m not in the prediction business (believe me, it’s a BAD business), sky high valuations for stocks and historically low interest rates on bonds might indicate lower returns on our investments going forward. If this bears out, then savings rate and diversification become even more critical. In a low growth world, saving a bigger slice of your income can help to make up the return gap, particularly when the alternative is stretching into riskier and more dangerous investments. But saving more, while critical, is only the first step. Saving and investing without goals is just accumulation, and it is way easier to get off track without longer-term financial goals tied to that saving. Goals allow you to create a plan, track your progress, and choose appropriate investments, all actions that your Baird Advisor is professionally trained to help you do. In this uncertain world, it pays to take back some control – reach out to your Baird Advisor and start today.


This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. This report does not provide recipients with information or advice that is sufficient on which to base an investment decision. This report does not take into account the specific investment objectives, financial situation, or need of any particular client and may not be suitable for all types of investors. Recipients should consider the contents of this report as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report. For investment advice specific to your situation, or for additional information, please contact your Baird Financial Advisor and/or your tax or legal advisor. Past performance is not indicative of future results and diversification does not ensure a profit or protect against loss. All investments carry some level of risk, including loss of principal. An investment cannot be made directly in an index. Copyright 2020 Robert W. Baird & Co. Incorporated.