A year of rolling pandemic lockdowns has provided an entire generation of investors with a dramatic reminder of the value of individual choices.

In particular, those living in Victoria and NSW will never again question the value of being able to choose to meet friends at a pub or restaurant, not having to wear a mask or simply paying a visit family across town or in another state.

Certain lifestyle and career choices - where you have chosen to live, the type of work you do – will always be foundational decisions. And in a pandemic affected world, investment choices may have taken on a different role than normal for some with the industry seeing an influx of first time investors, and greater trading volumes.

At any moment in your investment journey, there are likely a host of factors impacting the performance of investment markets and hence a portfolio exposed to those markets. There is no shortage of interesting product developments, changing economic and political environments and investment market swings to dominate conversations about financial plans.

In investing we have choices and they range from setting a strategic asset allocation, to product selection, to practical choices about how much we invest, how long for, how often we add to it, and what it costs. It is the cumulative impact of all the choices you make along the way, alongside the uncontrollable like market returns, that determines the outcome.

First the good news.

Looking back over the past 25 years, investment markets have been generous and rewarded disciplined long-term investors with strong returns. Vanguard recently took a look back at how an investor would have fared if they had invested $50,000 in 1996 and the impact certain choices would have made over this time. Here's what we found.

If our investor had chosen an investment carrying an industry average fee (0.85%) and chosen to contribute to that investment at a rate of 1% of their salary annually, they would have ended up with $474,211.

In a sliding doors moment, had that same investor initially chosen a product with the same investment proposition, but with a lower investment fee of 0.29%, they would instead have ended up with a balance of $537,831 - a 13.4% increase.

Had they made the choice to increase contributions to 4% of their salary annually, they would have grown their investment value to $731,533 after 25 years, a 54.3% increase.

Had they done both – chosen a lower cost investment and increased their contributions, their investment would have grown to $816,035, nearly double that of the base scenario.

The modelling also highlighted the long-term financial pain of being panicked by a market event and withdrawing for a period of time. It showed that the 25-year investor reacting to a market contraction after the initial five years, switching to cash and then subsequently reinvesting, would have been $121,000 worse off than if they remained disciplined and stayed the course throughout the market volatility.

The same market factors were at play but outcomes experienced were vastly different based on the choices made.

Now for the more sobering side of the equation – what the future may hold.

Long-term scenarios like these are very sensitive to variations in the return assumptions. For the historical case the return used was 9.45% for a 70/30 growth/income portfolio. Looking forward the return assumption is a more muted 6% based on Rice Warners' Expected Investment Returns of Asset Classes 2020 report.

Projecting forward for the next 25 years using an annualised return of just over 6% the outcome of the lower cost, high contributions scenario would yield $407,691 after 25 years.

That is about half what the previous 25 years has yielded, and is a timely reminder that we may not be able to rely on historical high returns as seen by superannuation portfolios with double digit returns over the last decade.

You may choose to ignore the more muted forecasts and plug in the higher historical average returns into your financial plan. You could alter your asset allocation to take on more risk in the portfolio or you could choose to save more (and spend less today) or accept a lower level of savings in retirement.

It all comes down to choices.

Vanguard Australia