Beating Some Index

In personal finance, what matters is not beating some index. What matters is meeting your goals.

Too often the investment industry confuses the two.

An index is simply a collection of investments that meet some specific rules. They are useful benchmarks. The investment industry was built on how they can help you beat the index because of their better process, smarts, etc.

We’ll save the realities of whether consistently beating an index is likely for another day and just assume that you have a magic power to identify investments that will be the index you’re benchmarking against.

Pretend for a moment that you live in a fantasy world where you beat the index every single year. Are you happy? Hopefully, at least with the performance of your investments. Does this guarantee you’ve met your goals? Nope.

Why is that? Because beating an index is about investment performance only. Without proper alignment with what you’re trying to achieve, investment performance isn’t very useful.

Let’s flip the scenario. Now what if you instead you under performed the index every year, but still met all of your financial goals? That’s possible with financial planning.

And that sounds much better to me.

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  • Mike Hunsberger, ChFC®, CFP®, CCFC

    Mike Hunsberger, ChFC®, CFP®, CCFC is the owner of Next Mission Financial Planning located in Saint Charles, Missouri serving clients across the US and wherever the military takes them. After 25 years in the Air Force he started his firm to support military, former military, and retirees through values-based financial planning enabling clients to live their best lives.