Benchmarking Inverts the Basics of Investing
The problem with “benchmarking” – that is measuring your investment performance against market indexes (known as “benchmarks”) – is that it often leads to buying into asset bubbles.
During the tech boom of the last 20th century, billions of dollars went into internet stocks whose values became wildly inflated. People who participated in this as a way of reaching for high rates of return, found that no one rang a bell when the party was over. Many lost their retirement savings and saw their 401(k)s devastated.
Certain stocks become wildly popular, industries become wildly popular and investing styles become wildly popular, all of which leads to wildly inflated values. This almost inevitably leads to financial pain.
But this does not only happen in the stock market. In the first decade of the 21st century, real estate seemed to be a way of making outsized profits. Of course, when the housing bubble collapsed, many not only lost money, but their homes.
The focus of serious investors is to align your portfolio with your personal objectives. The focus should be on long-term – multi-year – performance. The only benchmark that should concern you is the one you set for yourself.
At Korving & Company we keep our clients grounded and work with them to meet their personal benchmarks. Contact us to do the same for you.