Most of the people we advise are approaching retirement, often within the final ten years of their working lives.
At that stage, conversations tend to focus on whether they have accumulated enough money, when they might be able to retire and how to use their pensions, investments and savings to generate a sustainable retirement income.
Recently, however, I had the opportunity to speak with people at a much earlier stage in their financial journeys.
I spent a day visiting a manufacturing company, providing individual financial wellbeing sessions to employees. Some were nearing retirement, but many were young people who had only recently started working.
For several of these younger employees, the main questions concerned their workplace pensions. They wanted to understand how the schemes worked, what they were paying into and whether contributing was actually worthwhile.
Throughout the day, I found myself returning to one particular message: the earliest years of investing are incredibly important, even though they can feel like the least rewarding.
Contributions Matter More Than Returns in the Early Years
When people think about successful investing, they often imagine choosing the best-performing investments or knowing precisely when to buy and sell.
In reality, particularly during the early stages of building wealth, regular contributions can have a much greater impact than investment returns.
Consider somebody with £10,000 invested.
If their investments grow by 7% over a year, that’s £700 of growth. It’s certainly welcome, but it isn’t going to transform their financial circumstances.
Now consider someone who contributes an additional £250 every month.
That’s £3,000 being added to their investments each year, before any investment returns are taken into account.
When a portfolio is relatively small, the amount being saved usually has a much greater influence on its growth than investment performance.
Why Building Wealth Can Feel Disappointing
This is where many investors become frustrated.
Imagine someone contributing £250 per month to their pension and achieving an average annual return of 7%.
After five years, their pension could be worth approximately £18,000.
For someone who has spent five years consistently putting money aside, that might not seem particularly impressive. Most of the balance represents money they’ve contributed themselves, rather than investment growth.
It’s easy to conclude that progress is too slow or that investing isn’t producing meaningful results.
But the early years are about establishing the foundations.
The combination of regular saving, investment growth and time becomes increasingly powerful as the portfolio grows.
Consistency Makes the Difference
Now extend that example over a longer period.
Someone investing £250 each month, with an assumed annual return of 7%, could accumulate approximately £130,000 after 20 years.
If their monthly contributions increased to £500, the potential value could reach around £260,000 over the same period.
These examples illustrate the importance of consistent contributions, rather than relying on exceptional investment performance.
For workplace pension savers, employer contributions can make a further difference. As earnings increase throughout a career, there may also be opportunities to contribute more.
When these factors are combined, building a pension pot of £300,000 may be a realistic objective for many people, without requiring an unusually high salary or extraordinary investment returns.
Of course, these figures are illustrative rather than guaranteed. Investment values fluctuate, charges can affect outcomes and actual returns will differ.
When Investment Growth Starts Doing the Heavy Lifting
The relationship between contributions and growth changes as a portfolio becomes larger.
Consider an investment portfolio worth £300,000.
A 7% annual return would represent £21,000 of investment growth in a single year.
For many investors, that’s more than they could realistically contribute from their salary over the same period.
At this stage, investment returns may begin to have a greater influence on the portfolio’s value than new contributions.
The interesting thing is that nothing fundamental has changed about the investment strategy.
The investor is still benefiting from the same principles of regular contributions, time in the market and compounded growth.
The difference is that the portfolio has grown sufficiently large for investment returns to become more significant in monetary terms.
The Importance of the Boring Years
This was the point I wanted the younger employees to understand during our conversations.
Building wealth doesn’t usually involve making a series of spectacular investment decisions.
More often, it means putting money aside consistently, maintaining sensible investment habits and allowing those investments enough time to grow.
The first few years might feel uneventful. Progress can seem disappointing, particularly when the majority of a pension’s value comes from personal contributions.
But these years establish the foundations for the growth that may follow.
You don’t necessarily need significant wealth to begin investing. What matters is starting when you can, contributing what you can afford and remaining committed to a sensible long-term plan.
For many people, the years when investing feels least exciting ultimately prove to be among the most valuable.
