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5 Reasons to Stop Caring About How Your Portfolio Stacks Up

by | May 30, 2019

Regardless of what stage of life you’re in, it’s natural to wonder how your portfolio stacks up to that of your peers. In fact, I’ve received that very question quite often. People will say, “How are we doing compared to your other clients?” And while it is a mostly innocent question, it couldn’t be less productive as it relates to your financial situation.

With that said, here are 5 reasons to stop comparing your portfolio to your peers:

 

1. Expenses Matter More Than Portfolio Size

That’s right. Your expenses matter more than how much you’ve accumulated. Why is that? It’s because no matter how you’ve saved, there is always the possibility that through frivolous spending, you can blow through all your money. But, blowing through all your money may not always equate to “living it up” in Beverly Hills. Sometimes, it’s simply a result of “requiring” a higher standard of living (i.e. more expensive home, cars, restaurants, clothing, and trips).

Somewhat small increases across these common expense categories can add up to a much higher rate of spending over time. For example, an extra $2,000 per month in required expenses equates to an extra $24,000 per year, or $240,000 over ten years.

So, who is better off? Someone with a modest portfolio, which is on track to last the rest of his life, or someone with a larger portfolio, which is on track to become depleted due to a higher rate of spending?

2. Employers and Family Play a Role, Too

When people ask how their finances stack up to others, they typically want to know that they’ve been a good steward of their money. They want confirmation that they’ve made good choices, been prudent, and can be proud of what they’ve done. However, just comparing the size of your 401(k) to that of your neighbors doesn’t tell the full story.

Over the years, we’ve helped clients who’ve worked in many different industries, and with many different companies. With that, we’ve seen many different retirement benefit programs. Some offer an employer match. Others offer a profit-sharing contribution. Some offer a match plus a profit-sharing contribution. Some matching percentages are dollar-for-dollar. Others offer a partial match. Some profit-sharing contribution percentages are 5%, while others are 10%.

The point is that some employees are extremely fortunate to have received massive amounts of employer contributions toward their retirement accounts. Other employees perhaps did not receive the same amount of employer support toward their retirement plan.

Another thing to consider is that while some investors receive an inheritance from parents, grandparents, etc., there are some that receive no inheritance whatsoever. This can make an enormous difference in the overall size of your portfolio.

Employer retirement contributions and inheritances are two factors that are, for the most part, out of your control. So, while you may feel like you haven’t saved quite as much as others have, these are factors you need to also consider.

3. Pensions and Social Security Counts Too

Too often, when folks are trying to measure their net worth, they forget about other lifetime income benefits that they’ve accrued. A pension, for example, may not be counted as an asset on your net worth statement, but it certainly does have value. Social security benefits may not show up on your net worth statement, but they certainly do have value.

So, for example, if you have a strong pension and social security benefits, and both are more than enough to cover your living expenses, would you consider yourself wealthy? Many people would say the answer is based on the size of your other assets. I would counter and ask, “Why does that matter?”

I would contend that if you have more than enough income every month, and that income is projected to keep pace with inflation for the rest of your life, you can consider yourself a wealthy individual. Just because your net worth statement doesn’t have a number in the millions doesn’t mean you aren’t wealthy.

4. Semi-Retirement Income is a Big Deal

Another factor that is commonly overlooked in retirement planning is the presence of semi-retirement income, or regular income extended past a typical retirement age. Although there are many people over the age of 62 that are still working, not all do so out of necessity. Some don’t plan to retire at a typical age. Some plan to continue working as long as possible. Others choose to work part-time after retiring.

Either way, adding income to the equation for someone in their late 60s, 70s, and beyond is going to massively change their financial picture. So, if your plan is to continue to work past the typical retirement age, you may not need to save as much toward retirement accounts during your working years. If you enjoy what you do and don’t plan on quitting, the size of your portfolio starts to matter less and less each year.

5. It Ultimately Doesn’t Matter

The final reason you should stop caring about how your portfolio stacks up to others is that is just doesn’t matter. Whatever has happened in the past cannot be changed. It is what it is and you are where you are. The only thing you can do now is to make the best decisions you can as you move forward. The more important question to ask is “How can I put myself in the best position to achieve my goals from here?”

If you can do that, and if you can commit to making prudent decisions going forward, that’s reason enough to feel good about the financial track you are on.

 

CarsonAllaria Wealth Management does not provide tax or legal advice. All articles and posts are provided by CarsonAllaria Wealth Management (CAWM or firm) for informational purposes only. By accessing or otherwise using this Article, you agree to be bound by the terms and conditions set forth below. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the Article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the Article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment strategy. In addition, this Article shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this Article serves as a substitute for personalized individual advice. Information contained in this Article may have been derived from third-party sources that CAWM believes to be reliable; however CAWM does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by CAWM, and the Firm is not responsible for the content of any such websites. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.

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All material provided by CarsonAllaria Wealth Management (CAWM or firm) is for informational purposes only. By accessing or otherwise using this website, you agree to be bound by the terms and conditions set forth below.

Investing involves risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced on the website, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s).

No portion of the website shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment strategy. In addition, this website shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this website serves as a substitute for personalized individual advice. Information contained on this website may have been derived from third-party sources that CAWM believes to be reliable; however CAWM does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by CAWM, and the Firm is not responsible for the content of any such websites.

Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.

*73% of financial advisors do not have a succession plan. Study conducted by the Financial Planning Association and Janus Henderson Investors. Statistic was cited in the CNBC.com article at https://www.cnbc.com/2019/04/29/a-majority-of-financial-advisors-lack-a-succession-plan.html

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