A few years ago, I joined a running club and now run a 5k (3.107 miles) each week. In my run club, we don’t reach the finish at the same time because we all have different abilities and different goals. Most of the runners that finish before me are younger or have more time available to improve their physical fitness. A few just have more natural ability. Comparing my run time to someone else my age, older or younger, can be frustrating. Most runners will tell you that it’s best to focus on your personal best time.
Investment professionals, news media, and individual investors often compare their investment performance to stock indexes like the S&P 500. The S&P 500, or Standard & Poor’s 500 Index, is comprised of the 500 largest U.S. publicly traded companies. The news often reports their performance, along with the Dow Jones, to use as a reference point for the health of the US Stock Market.
If you invest solely in these companies comprising the S&P 500, then the index is a great comparison. In 1995, the S&P 500 gained 34.11%*, but it lost 38.49%* in 2008. However, this isn’t representative of market performance outside of this collection.
If you don’t like the idea of comparing to something that lost 38.49%* in 2008, I understand. I don’t compare my running to the slowest runner, and in turn, I certainly know not to compare my running to the fastest contestant who completed a 5k in just over 12 and a half minutes. Success looks different depending upon the person and his or her goals, just like market success depends upon each individual’s custom investment portfolio.
My good friend Frank Mitchell said to me many years ago: “Your goals are your best benchmark.” If you’re meeting your goals, don’t let the rest of the world get you off track.
When the world talks about the fastest runner or the best performing stock index, ask yourself if you want to “benchmark” your life to the best and the worst sides of that comparison. In running and investing, my advice is to compare yourself to your own goals.
*Source: Macrotrends.net
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.