Owning the Benchmark!

 

Ever been out for dinner or drinks with friends?

The conversation starts out with discussing what has been going since the last time you meet, you talk about kids, work, holidays, parents etc.

At some stage, the discussion turns to what people are doing with their money or investments.  Everyone starts throwing out returns they are making.

You walk away comparing yourself to them, you’re not sure what to think, thoughts start going through your head, are we doing ok or should we be doing better?

Own your Benchmark!

Investment is a dirty business.

Yep, you heard that right.

The investment markets don’t make money from smart, calm and calculated people.

They make money from panic.

Playing the investment game without knowing the many layers of how it works is like competing in a golf tournament with Tiger Woods, only he’s disguised as a four-year-old.

Don’t take my word for it. Take Warren Buffets.

“The stock market is a device for transferring money from the impatient to the patient”

I’m not telling you this because I want to scare you, or lecture you, or belittle you. That’s not my style at all.

I’m telling you this because I want you to own the benchmark.

Too many people have a number in their head.

That number is the % return they want.

Sometimes it’s linked to another number, income.

Sometimes they get it from somewhere else, like the media or their mate down the pub.

That number is irrelevant unless you first work out why you need it.

Let me share more.

A client we recently worked with had worked hard all their life, the husband was a manager, and their partner was a stay at home mum.  They had provided for and raised two children who had gone on to secure great jobs.  It was now time for these clients to enjoy the good life, take time to do things they had no time to when working.

However, when we met these clients they indicated they wanted a return on their investments of 8% pa.  When asked how they came up with this number, the response was that we needed this return to meet their ongoing income needs.  The return was linked to the income they needed.

In the current environment achieving this type of return would take significant risk, risk deep down they were not willing to take.  Achieving higher returns leads to higher risk.

After talking through their unique situation, what results they were looking for, what their current reality was and what roadblocks were getting in the way.  The income they would receive at retirement was made up of a Centrelink part pension, income from their super and a little income from their personal investments.

Working through their current reality, they were able to comfortably meet their income requirements with a return of 4% on their assets, not needing to take the extra risk chasing an 8% return.

They were able to live a comfortable lifestyle without the added risk and stress.

Another client of mine was 10yrs off retirement. They were a professional couple that had worked hard, raised three children, now with great jobs, they had saved a little and their mortgage was nearly paid off.  They were now focused on ensuring they could maintain their lifestyle in retirement.

They had lived a great lifestyle, however when they stopped work they wanted to travel the world more, buy a caravan and spend time exploring Australia, they wanted to help out their children when they could, set up investments for future grandchildren, go out to nice restaurants on a regular basis, replace their cars every 10yrs and also give back to the community by undertaking some volunteer work.  They had their future lifestyle planned out.

They came in wanting to achieve a 10% return on their investments.  We chatted about this for a while to gain an understanding why they wanted a 10% return.  The reason they gave us this was that their friends had been talking about their investment returns, they were getting 10%pa, so they thought this was the number they needed to chase.

In their eyes, this was the benchmark.

We completed a thorough analysis of their current reality, their ability to invest over the next 10yrs and worked out that they did not need to generate a 10% pa to meet their desired lifestyle in retirement.  What they had not taken into account was some well-known tax strategies they could use that would get them to their goal without the need to generate a 10%.

They were, in fact, benchmarking themselves against someone else’s plan, not their own.

You don’t know what you don’t know.

We talked through the perils of chasing a 10% return including the allocation to growth assets along with the actual timing of retirement and any potential shocks to markets having an impact on their investments at retirement.

After these discussions, this couple were not comfortable with the risks associated with trying to achieve a 10% per year return.

We had in fact worked out they only needed to generate a minimum of 5% pa return to achieve their desired lifestyle in retirement, not the 10% they had benchmarked themselves against.  They were more comfortable with this course and they felt like a weight had been lifted off their shoulders.

Once again, they were not benchmarking themselves against their own reality.

This is the key point, don’t just focus on the return, focus on what it is that is required to meet your goals and aspirations.

A question I quite often ask my clients is if you were able to achieve all your goals and aspirations and never beat the market, would you be happy with that?

To date, I have not had someone say no to that very question.  You may be different, but it is the achievement of goals and aspirations that leads to experiences that are generally more important than generating market-beating returns.

The only benchmark that matters is what it takes to live the life you want.

Hope that helps….

P.S Whenever you’re ready, here are 3 ways I can help ensure your financial affairs are in order and you can achieve them in the timeframe that works for you.

 

1. Book a Q&A 15min Strategy session

If you want to get some 1:1 help, we can jump on the phone for a quick call, and brainstorm how to make sure your financial affairs are optimised, protected and cared for.

Email me at gdoherty@jigsawprivatewealth.com.au to book a time.

 

2. Get the 60-minute crash course

If you want to go a bit deeper, you can book a 1-hr Strategy Session to scope out, road test and make sure your current plan is the best it can be, fully optimised.

Email me at gdoherty@jigsawprivatewealth.com.au or phone me on 0401 253 729.

 

3. Answer a Question

Or, if you just have a burning question that you want to be answered or a problem you are trying to solve, simply just send me an email, gdoherty@jigsawprivatewealth.com.au

Make it a Great Life!

 

Financial Planning Investments