Broker Check

Practical Planning Tip: Mistakes Affluent Investors Make - Mistake # 6

May 23, 2024

Today’s mistake is Getting caught up in relative performance: Relative performance is the measurement of one’s investment performance against a suitable benchmark. The problem is agreeing on what is suitable. Theoretically, the optimal comparison would be a blend of indexes that correspond to your portfolio’s holdings. However, investors like to use a familiar standard index, such as the S&P 500. The issue is that if your portfolio is not exclusively made up of the largest US companies and includes international equities, small companies, and fixed income, then it really doesn’t make for an apt comparison.


There is also what I like to call the “keeping up with the Joneses benchmark.” If friends from your social circles mention their stellar investment returns, it often leads to jealousy and frustration as to why your portfolio’s performance doesn’t measure up. Unfortunately, people often cherry pick information to create an appealing narrative to impress their friends. They boast about the returns of their big winners and neglect to mention all their losers. Hearing about others’ success, whether accurate or inflated, can cause emotional distress and make investors question their overall strategy.


Frankly, the only performance metric that should matter is whether you are on track to achieve your personal financial goals. Seeing your investment performance through that lens is much more relevant than the performance of an arbitrary index or the unverified claims of your friends.

You can WATCH the full video here.