Measure Carefully

It recently occurred to me that measurements are like rules. We sometimes think the measurement is important by itself.

Things that have rules and things we measure are important, but without the context of why the rule, or why the measurement, we can become confused.

The idea of a rule or a measurement is to permit the comparison of observations to some standard.

My friend, Brian MacKenzie has frequently pointed out that comparison is the thief of joy.  If you measure your worth by your looks, physical skills, income, wealth, number of facebook friends or the attributes of your children, you will be joyless.  No matter what you measure someone out there can top you, and noone remembers who came tenth.

That is why newspapers tend to print bad news instead of good news.  Good news makes you feel less happy. Bad news is uplifting because it did not happen to you.

My daughter Sarah did her PhD thesis on how immigrants acculturate.  One of the key elements is comparison.  So, why does comparison work there?

In acculturation there are two comparisons.  One is to people who are doing better and from whom you can learn techniques for success. The other is a comparison to people who are doing less well than you and to observe, process and learn from their mistakes and shortcomings.  With two comparisons, you have a filter of sorts.  If all the successful have good language skills and all the unsuccessful do not, you might beneficially pay attention to that detail.

Be careful setting a measurement standard. Sometimes the target overwhelms the reason you created it in the first place.  Every target result should be in the the context of its purpose.  Sterile numbers are a menace. Sometimes a wrong number is right and vice versa.

You must know the result, it’s reasonableness in the circumstances, and it’s meaning for you.

The statement that I need 7% return on my investments is such an example.  If I know my context, like future retirement spending, then that number is not helpful because it is too narrow.   Something like I want 3% after taxes and above inflation, (an ambitious goal), is more meaningful. 

Because markets fluctuate in ways that do not correspond to my needs, annual results could be misleading. Consider using a longer time period.  Maybe a rolling five year result.

I should set whatever rate gets me, in spending money terms, what I need or want.  The Goldilocks Yield.  Just right for me.  And it does not matter what is right for anyone else.

There will be a lot less random noise in your life if you know the purpose of your standard.

Subscribe to the daily MoneyFYI article at moneyfyi.wordpress.com, Follow on Twitter @DonShaughnessy or Contact: don@moneyfyi.com  

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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