Broker Check
How Do You Measure Success?

How Do You Measure Success?

February 23, 2024

Driving through town the other day, I stopped at an intersection and next to me was an incredible sports car.   You could hear the power coming from the engine.   You could see the speed coming from the smooth lines of the frame.   And, you could feel the pride beaming from the driver of the vehicle.   

I started to slump in my seat, and it wasn’t helped when my grandkids said they’d rather be in the sports car.   With much sacrasm, they were informed that their booster seats wouldn’t fit. 

My vehicle is great.   It allows my wife, Maureen, and me to haul our grandkids to different events.   The ride is great on the interstate, and it looks nice, but, not quite as nice as the sports car.   There’s a legitimate reason for that.   It’s not a sports car.   Rather, it’s utility vehicle.   I got caught in the trap of evaluating my vehicle against something not very comparable.   It would be a bit like a high school baseball player comparing their statistics to legendary slugger Babe Ruth. 

We do this all the time with lots of things, and I see it regularly with investments.   The media and the internet remind us daily (no…minute-by-minute) of the happenings of the stock market.   Often, we casually talk about the S&P 500, the Dow Jones, or even the Nasdaq.  That’s all well and good until we use that information as a measurement on how our investments are doing.   

Unless you are invested solely in S&P 500 stocks, using that to evaluate your investments is no different than trying to compare my bulky SUV to a sleek, but compact, sports car. 

A proper investment portfolio is an elegant recipe of different ingredients (e.g., stocks, bonds, cash, real estate, etc.) blended properly to accomplish a purpose (e.g., retirement 10 years from now, money to purchase a car 18 months from now, etc.).  

Remember, the only thing you should compare against is yourself. Not your neighbors, not "Jim Cramer", not the S&P 500.  Rely on your financial plan for comparison - Are you closer to or farther away from your goals of redoing your kitchen, paying for your daughter's wedding, taking the "bucket list" vacation? When building your “investment recipe” you should consider the following: 

🚗 🏠 Purpose
🎢 Risk appetite
🏛️Tax consequences
💸Income needs

One you have your portfolio constructed you will want to measure it so an index, or benchmark, that is closely aligned to your portfolio.   That way you get a fairer assessment if your investments are performing appropriately for your situation. 

So, when you pull your figuretive investment portfolio up to the intersection, you won’t get trapped into comparing it to the sport car index that doesn’t fit your life.    Keep your hands at “10 and 2” as you continue on the journey to your ideal life.