Saving vs Investing for Retirement : Which is more important ?

Saving vs Investing :

Everyone wants to be the genius investor who would beat the market and turn a small amount of cash into a fortune.

 We continuously search for “ multi-bagger “ in our investment portfolio, unfortunately, it's pretty difficult to do that and hard to achieve “Alpha “ by most of retail investors.

That's OK because as an average retail investor, we hardly could outperform the market continues to achieve financial independence. Alternatively , consistent saving over time is much more likely to pay off than complicated investments or strategies such as timing the market, momentum trading or trend following investing strategies have a high probability of failure, but saving always wins.

While saving and investing go together like left and right hands, accumulating money through savings is the main mechanism that makes investing work.

“The only way to build wealth is to have a gap between your ego and your income. Getting rich has little to do with your income and everything to do with your savings rate. And your savings rate is just the difference between your ego and your income. Keep the former in check and you should be fine over time. – Morgan Housel, Motley Fool

The verdict :

An above-average saver will do better than a great investor who doesn't save ( or save less ) in the long run. Let's say you are in the rare group that can outperform (the market by) 3 percentage points per year -- few can do that. But you can't accumulate as much as someone who was more of an average investor but saved in a disciplined and consistent way.

Below chart shows the result of 2 different investors, one is better saver than the other :
  1.       .   Assuming 7 % p.a over 30 years
  2.         Investors A save $10K per year ( for 1st 10 years ) and $15 K, $20K in following 20th and 30th years of investing
  3.         While Investor B save only half of the amount of Investor A, which is $5 K, $7.5K and $10K for every 10 years of investing journey.
  4.          At the end of the 30th years, Investor B only be able to achieve 33.3% of the total of Investor A.

Well, now let’s assume that Investor B is a “great and genius “ investor who be able to beat the market by 3 % points in the long run ( of 30 years ) , which is very rare and extraordinary ( as mentioned ).

-          Even with such good investment result, Investor B still not be able to beat the total return of Investor A. ( only approx. 59% of the total return of Investor A).

Well, what is the ROI required in order for Investor B to have the same investment amount as Investor A? The answer is ….. 12.635 %, which is a very exceptional return to be achieved by average retail investors like us.

Everyone wants to retire with a lot of money at some point, but are they willing to save and be disciplined with their spending in order to do that? As I have mentioned in one of my investment strategies, “ Money Management “, watch out for our personal “ cash flow “ and ensure that we don’t be killed by “ Lifestyle Inflation “.

In order to save more, of course, we will need to improve our income level by achieving better return on “ ROH “ i.e Return On Human Capital.

Net worth is an incomplete measurement of total financial worth as a living person, however. Human capital, your ability to increase your net worth in the future, is a bit harder to nail down, but it is an important factor to consider.

Below from Investopedia on 6 Ways to Boost your Human Capital

One should not just chasing or looking for high investment return during their journey of financial planning, but also need to achieve higher “saving “ through increasing human capital.
This is because adding extra savings to your portfolio gives compound interest more money to work on and achieve a higher total return on investment at the end of the day.

In my earlier years of working life, before achieving financial independence, we use to be very frugal and save a lot. The higher than average “saving rate“ allowed us to put in more money into share market and increased our investing during GFC.

If you think you are not a " good investors " and would not be able to " beat the market ", then you may consider increasing your "saving rate" and dollar cost your investment into Index Fund (if your Risk tolerance is much lower and would like to sleep better at night).

You may click on below link to find out more details on my perspective about saving vs investing: 


Quote Of The Day :

Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents; nobody can tax it or take it away from you. They can run up huge deficits and the dollar can become worth far less. You can have all kinds of things happen. But if you’ve got talent yourself, and you’ve maximized your talent, you’ve got a tremendous asset that can return ten-fold. By Warren Buffett


  1. I think saving and investing return is equally important ... best of both world. Human capital has lifespan while investing is no maturity date (you can pass over to your love one just like business).

    In real life, the compounding effect is difficult to achieve as investment return is not linear.

    Many of us (including me) use CPF-OA to fund our home. If we can fund our home mortgage with cash and leave all the CPF money intact, we should have big sum in our CPF account. This is one form of saving plus compounding returns.

    Nevertheless, only few using cash to fund their house mortgage.

    Yes, max our human capital while we are young and save more. Men at work.
    When we are retiring, let our money at work.


    1. Hi RN,
      Yes ! You are absolutely right ! Both are equally important and saving play bigger role in our young days ,, we should maximize capitalize our human capital in younger day and let our Money work harder in our retirement age ,,,yap ! Sometime , we use CPF too much for housing and neglected our requirement for retirement,, another alternative is staying or buying our house 1 stage below our mean ,,, then we could clear the mortgage soon and let our saving in CPF computing again ,,,
      Cheers !

    2. Hi STE

      Thanks for assuring average retailers like us can do well with saving.

      I am an average investor. If people think I can achieve Financial Independence by age 35-37 is remarkable, it got to do very much with saving and living well not by definition of materials.

    3. Hi FD,
      We all are just average investor ,, same same ,, :) I think your high saving rate and simple lifestyle ,, plus your good insight in investing ,, really contributing to your FI achievement !
      Cheers ... Gambateh !!

  2. Hi STE

    Any advice for those Self-employed and free lancer instead ?

    1. Hi Small Time Investor,
      Yah ! Is quite challenging for Self-employ and freelancer ,,some time you win big , some time loss or break even ,,, well, think same apply ,when times are good ,, we have to save more and invest ,,when time are bad ,,, we will need to adjust ,,
      Hahaha,, may not be a good answer,, :)
      Cheers ,!

  3. Hi STE,

    The most valuable, to me, is to increase knowledge (don't know if knowledge can be compound or not, why you think?)

    I hardly come across someone who is successful with money (not through inheritance), but hardly read. And I am convinced your success has a lot to do with what you read : )

    1. Hi millionfaith,
      Yah! I think so ,, knowledge can be compounded once we getting old and read more :)
      Yes ! Reading is key to success ,,, as what Charlie Munger said : in my whole life, I have known no wise people who didn't read all the time ,,, none , zero " ..
      Cheers !


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