Throughout your life, it’s always tempting to compare your circumstances and achievements to others.
For example, if your neighbour buys a new car, or a friend moves to a bigger house, it’s always hard not to look at your own situation and wonder why you haven’t done the same.
This feeling is known, colloquially, as “keeping up with the Jones’s”. Effectively, it means that you’re benchmarking your own position against an external comparison.
A dictionary definition confirms that a benchmark is a “standard, or reference, by which others can be judged”.
However, comparing yourself to others when it comes to planning your financial future may not be a good thing to do. Read on to find out why it’s far better to create your own personal benchmarks, rather than worry about others.
It can be dangerous for you to set too much store by investment benchmarks
“Benchmarking” is a common expression you’re likely to hear a lot when it comes to investing.
Funds in different investment sectors will often be benchmarked against a certain stock market index. For example, the returns from UK equity funds will often be measured against the performance of the FTSE100. Likewise, US funds may well be benchmarked against a US index such as Dow Jones or S&P 500.
Furthermore, you may also be tempted to look at your own investment holdings and measure them against external benchmarks. You may wonder why your portfolio isn’t outperforming the FTSE 100, for example, or you might even have your friends tell you how well their investments are faring, and worry that your money isn’t growing at the same rate.
However, it’s often better to block out the external noise and focus on your own investments than to worry about other people’s, or specific indices.
The key is to have your own internal benchmarks related to how you are going to achieve the financial goals you’ve set for yourself in your financial plan.
Your reviews and analysis should be based around whether or not you’re on track to achieve your targets, rather than how your portfolio is performing in comparison to others.
It’s important to keep everything in context
What you gain or lose when it comes to carrying out any task is always relative to where you began.
For example, an Oxbridge graduate from a working class and state school background has arguably, and contextually, performed better than someone who has reached the same position after a life of privilege and expensive private education.
Likewise, from a financial perspective, investing money to create a portfolio of £500,000 from a starting amount of £200,000 will look rather different than arriving at the same outcome having started at £700,000.
Both journeys have ended at the same point, but clearly there has been a big difference in the relative success of each.
Personal context is all-important, and how you feel about your achievement should be informed by the background to your decision making.
You should endeavour to ignore external benchmarks
If you measure your success solely relative to others – effectively external benchmarking – you’re liable to end up feeling stressed and pre-occupied with how you look to others rather than how you perceive yourself.
If you look hard enough, you’ll always find someone who is making better decisions and – as a result – getting richer than you. What’s more, as success is often shouted about and advertised, they’ll make sure you know about it.
In the investment sector, fund managers will always be quick to highlight their successes, though far more reticent to talk about their mistakes and fund underperformance.
Likewise, media fund commentators will boast about a successful investment but will tend to stay quiet about the fund or share that halved in value after they tipped it.
It’s too easy to become self-critical and start going down blind alleys rather than remaining focused on your own personal objectives.
Setting your own benchmarks
Focusing on your own internal benchmarks is a far more effective way to manage your money, and can also help to reduce your stress levels and concern with how others are doing.
When it comes to managing your investment strategy, the key criteria you should be measuring is how close it is getting you to hitting your financial targets.
The important things to know are whether you’re on track, and – if not – what amendments you need to make to get you back on the road to success.
It’s also important to realise, when you’re comparing yourself with others, that your measurable success is relative to where you began, and where you ultimately want to get to.
The key is to be sure of what your financial priorities are, and what you need to do to deliver them. Better that, than worrying overly about what others are doing.
You’re unique, so your plans should be too
Everyone is different. We all have different personalities, hopes, and expectations. The infinite number of differentiation points between us means that it’s impossible to replicate someone else’s plans.
There’s no such thing as a “one-size-fits-all” solution when it comes to putting your financial plan together.
So, the internal benchmarks you create for yourself, and which will form a key part of your plan, have to be unique to you.
Your success can then be measured in terms of whether you are happy and finding fulfilment in what you do.
You should avoid getting distracted by others, and starting to let what they are doing influence your thoughts and actions. It’s much better to trust your plan and stick to it.
Get in touch
If you’d like to know more about managing your investments, then please get in touch.
You can call me on 07769 156 250.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Foster Denovo Limited is authorised and regulated by the Financial Conduct Authority.