Savings Rate or Investment Return: Which Matters More in Your First Five Years?
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5 min read
Rina saves Rp3 juta a month and earns a slow 4% a year. Budi saves only Rp1,5 juta a month, but earns 10% a year.
Five years later, who has more money?
Most people guess Budi. The higher return sounds like the winner. But when you do the math, Rina is ahead by more than Rp80 juta. This post shows why, and also the year when Budi finally catches up.
It is the core of the savings rate vs investment return question: in the early years, which one actually moves your net worth?
Savings rate is the part of your income you set aside. If you earn Rp10 juta and save Rp2 juta, your savings rate is 20%.
Investment return is the percent your money grows in a year. If Rp100 juta becomes Rp110 juta, the return is 10%.
One is about how much you put in. The other is about how hard the money works after it is in.
This is NetWort arithmetic with made-up numbers. It is not a forecast, and no real fund pays a fixed 4% or 10% every year.
Both start from zero. Both earn their return in monthly steps, and both reinvest it. All values are before tax and fees.
| Year | Rina (Rp3 juta, 4%) | Budi (Rp1,5 juta, 10%) |
|---|---|---|
| 1 | Rp36,7 juta | Rp18,8 juta |
| 2 | Rp74,8 juta | Rp39,7 juta |
| 3 | Rp114,5 juta | Rp62,7 juta |
| 4 | Rp155,9 juta | Rp88,1 juta |
| 5 | Rp198,9 juta | Rp116,2 juta |
Rina is far ahead every single year. Her pile is Rp82,7 juta bigger at year 5.
Look at where the money came from. Rina put in Rp180 juta herself (60 months at Rp3 juta). Her return added only Rp18,9 juta. Budi put in Rp90 juta, and his return added Rp26,2 juta.
So Budi's money worked harder. It just had half as much money to work with.
Return is a percent. A percent of a small pile is a small number.
In year 1, Budi's 10% is earned on a balance that averages about Rp9 juta. That is only about Rp0,9 juta of growth. Even a perfect return cannot make up for a small base.
Saving more adds money straight away. An extra Rp1,5 juta a month is Rp18 juta a year, and it needs no luck and no market.
To match Rina's Rp198,9 juta at year 5 while saving Rp1,5 juta a month, Budi would need about 29% a year, every year, for five years. That is not a realistic plan.
Here is a smaller test. Take someone saving Rp1,5 juta a month at 7% for five years. That ends near Rp107,4 juta.
In the first five years, a small saving boost beat a one point return boost by about six times.
The answer is time. As the pile grows, the same percent becomes a bigger number.
| Year | Rina (4%) | Budi (10%) |
|---|---|---|
| 10 | Rp441,7 juta | Rp307,3 juta |
| 15 | Rp738,3 juta | Rp621,7 juta |
| 19 | Rp1,022 miliar | Rp1,014 miliar |
| 20 | Rp1,100 miliar | Rp1,139 miliar |
Budi passes Rina in year 20. After that, the gap grows quickly in his favor, because a 10% return on a big pile beats a 4% return on a big pile by a lot.
The lesson is not "return does not matter". The lesson is that each one has its own season.
If you want to see this effect on its own, read about the cost of waiting five years to start investing.
Do not read this as "keep your money in a low return account forever". Rina's 4% would lose its edge over decades. And Budi's 10% is not guaranteed. Real returns go up and down, and some years are negative.
A simple order of work for the first years:
Open the NetWort Dashboard and look at your portfolio value over time. Then ask one question: how much of the growth came from what I added, and how much came from returns? In your first few years, you will likely find that most of it came from what you added.