Opinion – Grain in Grain: This item is more important than the return on your portfolio

Undoubtedly, the periodic return of your portfolio is relevant in the formation of your fortune. However, another item is even more representative in the result of his fortune, but little attention and effort is given to it.

Investors wear out, getting anxious when their return drops below the CDI. They spend nights looking for an alternative to increase profitability. And in this unbridled search, they end up falling into traps that put all the effort of years at risk.

We know that any effort to produce greater returns carries with it a risk of worse results.

All this work could be concentrated on another task that is more doable and more certain of results.

See the example. If you invest BRL 1,103.00 monthly for 23 years, yielding the current Selic rate, you will end up with BRL 1 million.

The current Selic return is 0.74% per month or 9.25% per year. We all aim for higher returns than Selic. I remind you that the Selic and CDI returns are very similar.

Following the same monthly contributions, if we manage to monetize 130% of the Selic, that is, 0.96% per month, we will reach R$ 1.5 million at the end of 23 years. A 160% return on Selic will produce a portfolio of R$ 2.3 million.

However, in the pursuit of these higher returns, we may have worse results due to unfavorable conditions in investments such as those that occurred in recent months.

Undoubtedly, achieving returns of 160% of the CDI, systematically, for 20 years, is not an easy task. Almost no Brazilian hedge fund achieves this. Remember that a fund has a specialized and experienced team fighting to have this return.

Wouldn’t it be simpler, if you seek to increase the amount you save by 10% per year?

If today you save R$ 1,103.00, wouldn’t it be more feasible to fight to save R$ 1,213.30 next year, than to achieve a 160% return on the Selic?

If you manage to increase your monthly savings capacity by 10% per year, at the end of the same 23 years, you will have a fortune of R$ 2.4 million. Therefore, bigger, simpler and more feasible than getting 160% of the Selic for 23 years.

I understand the effort it takes to save. I’m not saying it’s easy to increase savings. However, no one can deny that it is more feasible for you to increase your monthly contributions by 10% annually than to get 160% of the Selic for 23 years.

I’m also not saying that you shouldn’t aim for greater returns.

My goal is to guide you on what will produce the greatest result and is most feasible to achieve.

The table above shows how an annual increase in contributions can result in more than an increase in returns.

So, your first and biggest effort should be to increase your savings. For that, your focus should be on investing in your education to raise your income and additionally not increasing your spending when your income goes up.

If you do this, you will reach your goal of fortune sooner and more surely.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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