In financial planning, there is only one benchmark that matters – are you on course to be able to live the life you want, without fear of ever running out of money and becoming a burden on others.
That’s it, that’s the benchmark. All other benchmarks are redundant or worse, a menacing distraction.
Simply beating the S&P500 or the FTSE100 or the base rate or inflation by X, Y or Z percent does not get the job done. Nor does any other arbitrary measuring stick you might grab hold of. All that matters is that, across the board, you are doing what’s needed to get you where you want to be.
For example, if your investment strategy is to beat the FTSE100 by 10% a year, but you’re only committing a pittance to it, you will still die a pauper.
This is a reason (amongst many others) why a solid financial plan is key to financial success. A killer investment strategy that beats all benchmarks simply won’t cut the mustard on its own
A simple analogy to this point is that of a car. A car goes nowhere without an engine (a sensible investment strategy), but the engine is useless without wheels, steering, suspension and transmission (the rest of the financial plan).
One without the other makes no sense and can never result in success.
So, forget beating this that or the other benchmark and tell me this – are you on track to end up where you hope and need to? Because that’s the only benchmark that will matter in the end.