"How am I doing?" is one of the most useful questions in life. Stopping to take stock in any area is what lets us correct course while there's still time to do something about it.
We'd naturally encourage you to ask it about your financial life too. It's the question our regular planning meetings with clients are built to answer.
But we've noticed that when people ask it, two numbers tend to be within easy reach, and both get pressed into service as a benchmark.
The first is the market return. It's on every finance page and in every market summary, which makes it the easiest number to grab. The second comes from the people around us, and the returns they quote when a story about their investing has gone well.
Why neither one fits
In our view, neither number tells you much about your own progress.
An index has no goals. It has no children starting university in four years, no income to draw next month, no tax position, no time horizon, and no reason to hold anything in cash for what's coming up. So, measuring your plan against it isn't comparing like with like.
There's another problem. A properly diversified portfolio will nearly always sit behind whichever asset class had the best year. That's not a flaw in diversification. It's the point of it. Spotting last year's winner with hindsight is a very different skill from picking it in advance, and only one of those skills exists.
Likewise, the friend with the impressive return rarely tells you about the risk behind it. The money may have been concentrated in a single holding, borrowed against, or owned by someone who could shrug off losing it. And you only ever hear the versions that worked out, because nobody dines out on the bet that went the other way.
A more useful question is whether your portfolio did the job you gave it and whether it can keep funding the life you actually want.
A real scoreboard
There are five questions worth revisiting every year, ideally with a qualified financial life manager alongside you.
- Am I on track to fund the life I want?
- Is my savings rate where it needs to be?
- Will my income last for as long as I do?
- Have I avoided any permanent mistakes?
- Is the money buying a life I actually want?
That last one hardly ever makes it onto anyone's scoreboard. A plan can be perfectly on track and still be funding a life nobody sat down to choose. Answering it honestly means looking at what you spent on last year and asking whether you'd happily buy it all again.
If any of the five comes back as a no, there's normally a lever to pull: save a little more, spend a little less, adjust what you draw, or shift the timing of something you'd planned.
Compare that with the index. It sits entirely outside your control, so last year's return tells you nothing about what to do next.
What we measure shapes how we behave. Judge the year by an index, or by a friend's story, and the temptation is to start fixing a portfolio that was never broken.
Judge it by the things within your control, and the scoreboard usually hands you something practical to do.
