TIP849: Average Returns Can Still Make You Wealthy w/ David Fagan

David Fagan argues that average investment returns can build meaningful wealth when saving, behavior, time, taxes, and investment structure work together. The path from near zero is different from preserving an existing fortune, but in either case the return shown on a brokerage statement is not the whole story. Stig describes the basic accumulation equation as how much people save, the returns they earn, and how long they let those returns compound without interruption.

Fagan calls his broader measure “Total Wealth Performance”: decisions made before money is invested, returns earned while it compounds, and the amount ultimately retained after taxes, fees, and other friction. As an illustration, a reported annualized return of 10–11% might become 7–8% after behavioral mistakes and tax drag, then about 5% after management fees and fixed income. Tax drag applies to taxable investors; registered vehicles such as RSPs and TFSAs avoid tax as investments grow. Fagan’s point is to assess what actually compounds, not just the portfolio’s quoted return.

Saving is the starting requirement for building wealth from near zero, and small, sound habits can accumulate over time. Fagan credits luck for circumstances he did not control, including being born in Canada to loving parents, while also describing deliberate choices he and his wife made: planning their spending at 22, paying off student loans, living below their means, and delaying gratification. He says investors should prepare an action plan before money becomes available, since cash held aside while waiting for a better entry point can create a compounding gap that cannot later be recovered.

The cost of waiting can be substantial. One client held about $4 million in a self-managed balanced index portfolio while keeping nearly $1.5 million in cash earning no interest, because he was waiting for a better time to buy; Fagan says being out of the market in 2025 was expensive given the client’s intended index strategy. In another case, a managed ETF portfolio that included fixed income compounded at 18.2%, but the return was closer to 15% when uninvested cash was included. The client spent almost 11 months of 2025 setting up accounts while substantial assets remained idle. Fagan estimates that missing roughly a year of 15% returns could amount to about $3 million after 40 years at an assumed 8% return, but stresses this is an illustrative projection and would not materially change that client’s life.

Fagan says market participation and continuity matter more to wealth creation than perfect timing, and that a strategy needs to fit an investor’s temperament well enough to hold through difficult periods. He uses a methodical index-fund approach for his wife’s and daughter’s accounts because it is simple and requires little guesswork. Major events such as a business sale, inheritance, property sale, or divorce can make large sums available when people are unsettled; learning to invest for the first time at that moment can feel overwhelming. Wealth can also compound through businesses, real estate, private investments, and human capital, so portfolio returns alone do not capture the full picture.

Fagan regards net worth as an imperfect but useful accumulation-phase scorecard: over 15–20 years, absent major life distortions, its direction can reflect saving, spending, taxes, debt, and business decisions. Marriage, divorce, inheritance, philanthropy, health issues, and hard-to-value private assets complicate comparisons. Stig evaluates returns in dollar-weighted terms because the amount invested determines how much spendable wealth is created; a 10x or 100x gain on just 0.1% of net worth may have little impact. Risk should fit the goal: a $100 million portfolio might favor a 6% return with little downside, while a young investor with $100,000 might accept concentration in pursuit of a 10-bagger. Tax efficiency can also make a difference: Fagan says tax drag can reduce returns by 1–3% or more, especially in higher-turnover portfolios, while cautioning against making every investment decision solely for tax reasons. For Canadian professionals, his hypothetical example of $3.75 million in corporate fixed income earning 4% produces $150,000 of interest, while taxes, including the loss of the small business deduction, total $170,000; the resulting after-tax return is nearly negative 0.5%, and actual effects vary by circumstances and jurisdiction.