I spent boyhood vacations listening to a popular radio show while nestled in my family’s cabin in northern Wisconsin. The host had a storytelling style that hooked the audience by presenting a key outcome or success up front, and then filling in the rest of the story with surprises and interesting connections that led to that success.

The show, hosted by broadcasting legend Paul Harvey, was aptly titled The Rest of the Story.

How we in the financial services field talk about our clients’ investing success could benefit from a good dose of Harvey’s approach. Our conversations with investors often center on market returns and portfolio asset allocations—which certainly are an important part of supporting an investor’s risk tolerance and time horizon. However, they are by no means the only elements that build this story’s action.

Investors often think of success in concrete terms, like total dollars accumulated, but that’s just part of the story. People want different things at different times, and so the definition of “investing success” varies from person to person. The roadmaps for building a college fund, a retirement nest egg, a legacy plan—or any combination of competing goals—can look drastically different for different investors, particularly once tolerance for risk and time horizon are factored in.

In the end, any investment outcome comes from two sources: (1) savings, or the amount contributed toward a goal over time and (2) investment returns, which affect the growth (or the decline) of invested savings.

Asset managers focus heavily on the latter. The navigation of market swings, along with asset allocation recommendations, are the bread and butter of the industry. But that’s only part of the exposition and, quite possibly, not the most meaningful part of the story.

After all, if no money is contributed toward a goal, then even an infinite return leaves you with $0. Savings are needed to prime the asset allocation machine. That’s why stashed cash is at least as important as investment returns when storyboarding a successful outcome.

We explored the relationship between savings and investment returns, particularly as it affects investing success, in our research paper Vanguard’s Principles for Investment Success. In particular, we looked at how much savings and investment results contribute to goals over different time horizons.

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.

Here’s what we found: Over a two-year time horizon, 94% of a portfolio’s ending balance is achieved through savings, while only 6% comes from investment returns.

Over 10 years, 80% of the ending balance is achieved through savings while just 20% comes from investment returns.

And over the course of a person’s entire middle age—30 years—51% of an ending balance will still be achieved through savings while 49% (less than half!) will result from investment returns.

What it comes down to is this: Investors would be wise to put first things first, and to control what they can control. This means setting a savings plan at the outset, before making higher-order decisions like asset allocation. And that’s a good strategy for investors, because for many, how and when one contributes is controllable. Market returns are not.

We in the industry should take note: A fuller conversation about investor success includes guidance around how and when to save for goals, as well as advice around navigating markets and constructing an investment portfolio. The combination of those elements can ultimately lead to better outcomes, enhanced peace of mind, and increased control over financial outcomes.  

And that’s the rest of the story.

• Vanguard’s principles for investing success (32-page PDF, issued November 2023)
• What SECURE 2.0 means for young savers (article, issued April 2023)
• How plan design tweaks can boost saving rates (article, issued July 2023)
• A more personalized approach to financial advice (article, issued September 2022)