“How am I doing on my investment or retirement goals?” is a question I get pretty often, most often from acquaintances, not clients. The questioner is usually looking for a comparison to other people her age to gauge whether the she’s ahead of or behind her peers. And my answer is typically some variation of, “It depends.” This answer is often unsatisfying, but it’s almost always the best answer.
Part of the reason “it depends” is a great answer is because it’s a rotten idea to compare yourself to others. I heard this quote recently and it really grabbed me: “Comparison is the death of joy,” attributed to Mark Twain. This is a solid thought for all of us in every aspect of life, but it’s especially a great point of view for financial planning and wealth management.
Investment comparison
It’s bad to compare investments because:
- Your neighbor who is so successful doesn’t have all the same needs, priorities and timelines as you do for your financial life. For example, maybe her youngest child is 23 and yours is 11.
- Market indexes are not always helpful except in a really general way.
- Stock indexes have been around for decades. They are always in the market. They never need to liquidate to pay for your retirement home in Florida.
- Even stock indexes like the S&P 500 represent only part of the market. You may very likely own a portfolio that contains a broader selection of investments. Maybe you own some bonds. Maybe you have a bunch of cash in your account since you know you will have a tax bill due in about four months. All of these factors will make your account perform very differently from an index.
- Your brother-in-law who reads Money magazine and made a killing on bitcoin might not be quite as successful as he sounds.
- The tales friends and neighbors tell about their great investments need to be put into context.
- Nobody talks about the dumb stuff they did that blew up.
- Most people exaggerate their success and minimize their failures, just because of human nature.
- Like great golf shots and fishing stories, great investments are often hard to verify and don’t always reflect the exact situation.
- Few people working on their own keep great records of their investment performance. It’s possible to carefully document additions to the account and changes in value, then adjust for the time period and arrive at an annualize performance, but most folks don’t bother.
Setting retirement goals
I suggest that instead of comparing your financial situation to somebody else’s, you take some time to reflect on your goals, how things are going and how to be sure about how things are going. A great place to start is to meet with a CERTIFIED FINANCIAL PLANNER™ professional who is always her client’s advocate – a fiduciary advisor – and who ONLY works for her clients – a fee-only advisor – to discuss and talk about your financial plan.
A CFP® professional can help you create a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will get a meaningful understanding of how you are doing at meeting your goals. And, you will get a personalized action plan for how to move forward.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And, yes, I’m still taking on a few great families to be part of my financial planning practice.
If you want to know how you are doing, give me a call at 612-436-3770 or contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their financial plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.