[padobson]

With regards to the idea of having a cap on savings returns, this is very true. But savings are also different from investments in that whatever you were going to do with your discretionary investments, you now have more capital to work with because of your savings.

Example: You make $3000 a month and your monthly expenses are $2000. That leaves you with $1000 a month to invest. If you haggle on rent, clip coupons, and use second-hand stores and flee markets to get your monthly expenses down to $1500 a month with no reduction in lifestyle, then you have $1500 a month to invest.

The 50% increase in your investments means a very large gain on returns. With compounding interest at 8%, you can accrue $180k+ over ten years on $1000 into savings every month. When you change the savings to $1500, then you only need 1% return to save the same amount of money OR you'll have $276k at the original 8% rate. You're either massively reducing your risk or massively increasing your return.

In any event, saving money on expenses should be the number one priority of any investment strategy.

Note: I used this financial calculator for this comment - http://www.thecalculatorsite.com/finance/calculators/compoun...