Broker Check

Rate of Return Vs. Rate of Savings

September 07, 2021

You did it — you landed your dream job as a medical professional. It’s been decades of learning and training for this career. Now it’s time to focus on building your financial wealth. 


But where should you put your money? How will you save and invest? What are the risks associated with savings vs. returns? Financial planner Dave Duquette with Impact Medical Advisors shares his thoughts on the rate of return vs. rate of savings and how it will ultimately impact your financial journey. 


Rate of Savings  


When constructing your financial future, it is best to first focus on the rate of savings. Think of your financial savings like building a house. Your savings should be the foundation — strong, stable, and solid. After establishing your foundation, you then build up your house through investments.  


As a young professional, it is crucial to have a "nest egg." As your financial journey grows along with your nest egg, you can start looking at the importance of investments. At Impact Medical Advisors, we can help you research suitable investments to help you grow your portfolio.  


Over time, your portfolio should show diversity. This diversity will help protect your nest egg from huge losses — something you do not want as you approach retirement. The risks should be more significant earlier in your journey because you have more time to recover from potential losses. Later, risks should be minimal because you do not want to lose your investments as you prepare to retire. 


Rate of Return 


Who doesn’t love big returns? Hefty returns are every investor’s dream, and when it happens, it feels like you’ve won the lottery! Why wouldn’t you want to focus on big returns? 


Significant rates of return are great, but will you get to the specific number you want when you retire? Or is it more of an unrealistic return on your weak investment?  



Although exhilarating, a high rate of return should not be your priority. Saving should be your priority. 



If you are a new investor, especially a younger one, it is essential to build your investment portfolio first through savings. Once you have a nest egg, then your rate of return will start to have an impact. 


Remember, you cannot control your returns, but you can manage your savings. 



The Importance of Compounding  


Compounding interest is the best way to generate exponentially large returns. But without having a savings or large investment amount in place first, compounding will not be as beneficial. Your principal interest, or rate of savings, is what you should focus on first. 



Compounding interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pays it.” – Albert Einstein 



To compound significant numbers over time, you need first to save as much as you can; this will help you get more significant financial gains as soon as possible. 


When you compound interest and its returns, you are doubling the amount each time.

In just over two weeks, your $5 has become $81,920! And if you do the same thing for a penny and double it every day for 30 days, you will get over $10 million! 


It is important to note that most of the growth happens in the last few days when a significant amount of money is saved. Therefore, in the beginning, it is essential to have considerable savings to compound growth! 


Key Takeaways 


  • Your savings rate is more important than your rate of return. 
  • Our industry has focused on the wrong thing — the focus should be on the rate of savings, not investment returns. 
  • The average savings rate of Americans is roughly 5%; most of that goes into retirement accounts that cannot be touched without penalty until you are 59.5 years old. 
  • In general, Americans have a lack of emergency funds. Six months’ worth of expenses should be set aside for this purpose. 
  • Companies are offering fewer pension options. 
  • Pensions, generally speaking, mean that employees do not have to save for retirement because the company did that for them. 
  • A 401(k) plan puts the responsibility of saving for retirement on the employee. But ultimately, savings rates have dropped even though people must save for themselves. 
  • An increase in technology is making it easier to spend rather than save. 




Prepare for Your Future with a Professional  


At Impact Medical Advisors, we teach our clients to save at least 20% of their gross income. We will help you find the “lost” dollars.  


We also will advise you to use the majority of your 20% savings for liquid investment options rather than a 401(k), especially for our younger clients. Liquid investment options do not lock away money into retirement accounts inaccessible without penalties and taxes until age 59.5. Opportunities and emergencies require liquidity, especially for younger clients.  


At Impact Medical Advisors, it is our job to help you prepare for your retirement future. Call us today at (813) 956-3633 or schedule an appointment online to speak to our financial planner about growing your future. We will discuss how the rate of return and savings will most benefit you and your financial investment. 




About the Author 


Dave Duquette is the president of Impact Medical Advisors based in Tampa, Florida. As a part of Westshore Financial Group, he specializes in working with medical professionals across the country. Impact Medical Advisors is guided by our mission to help people gain control of their finances.  




Financial images courtesy of Westshore Financial Proprietary Information and are for illustration purposes only. 


Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.This material contains the opinions of the author but not necessarily those of Park Avenue Securities LLC (PAS) or Guardian. Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, Mass., or provided by Guardian. BLICOA is a wholly-owned stock subsidiary of and administrator for the Guardian Life Insurance Company of America (Guardian), New York, N.Y. Product provisions and availability may vary by state.Optional riders are available for an additional premium.   


Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, N.Y. PAS is a wholly-owned subsidiary of Guardian. Impact Medical Advisors is not an affiliate or subsidiary of PAS or Guardian. CA Insurance License #0N14650. 2021-122189 (Exp. 6/23)