The market is no benchmark

Why a long-term investment strategy can’t be properly assessed using a short-term metric

Sarah Newcomb 17 December, 2019 | 1:33AM

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I recently heard someone say, “Beat inflation, not the market.” That got me thinking about how important it is to choose benchmarks for judging success that really fit the problem you are trying to solve. This is especially poignant now, since it's December, and many of us are taking stock of our year, looking at our goals and accomplishments, and making plans and adjustments for 2020.

We manage what we measure, adjusting our strategies based on our metrics of success and failure. It’s important, then, to know which measures are truly appropriate and which are red herrings. Looking at your own investment strategy, what is an appropriate measure of success or failure? Here, I’ll talk about why the overall market is the wrong benchmark, and what will serve you better, based on the current stage of your financial life.

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About Author

Sarah Newcomb  Sarah Newcomb, Ph.D., is a behavioral economist for Morningstar.

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