Don’t Lose Sight of What Matters

I’ve spoken before on tracking key performance indicators to track progress on a strategy you implemented

This is based on the idea of measuring benchmarks that will drive the achievement of your desired outcome. For instance, people concerned with their health often use a scale to track their weight and measure progress. The weight on the scale can vary widely each day because of variables such as the time of day you weigh yourself, calories consumed, calorie burned, level of hydration, type of clothing worn, and intestinal mass. Over the long-term, the determinant of weight gain or loss is your net energy balance being positive or negative. A positive net energy balance means you have consumed more calories than you have burned.  

When it comes to retirement, people often track the value of their portfolio, as a measure of success. Like with your weight, the value of your portfolio can vary greatly over the short-term but over the long-term is a reliable measure of the “net energy balance” of the portfolio. Ask yourself, “Is the portfolio growth outpacing any withdrawals being taken from it? 

The weight on the scale or the size of your portfolio are just numbers. They are easy to track and quantify but do not necessarily equal your health or success in retirement. For instance, someone could crash diet and become much less healthy in the process of losing weight. Yes, there would be “progress” on the scale, but at the sacrifice of the more important goal of health. The same parallel can be drawn with your retirement portfolio. You could slash all your discretionary spending for the sake of increasing the size of your portfolio and not allowing yourself any enjoyment in the process. We do not view this as a successful retirement plan.

Health and happiness can not be measured directly, so we use other easy to quantify measures such a weight or portfolio size to help us determine them. As you can see there are flaws in placing too much importance on single data points and finding balance is key.  

Sustainability must be considered when using any strategy, the process of becoming healthier, or happier is what is important. What you measure to track progress is the means to an end. 

Health is not the weight on the scale, success is not the size of the portfolio.  

By Gage Paul, CFP®, RICP®, EA 

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