In physics, relativity is a fairly big deal. It is not intuitive and most times we can ignore what it means for us. We are neither big enough, nor moving fast enough to have much concern for it.
Your finances are the same way. Relativity matters.
How much do you spend in relation to income?
How much financial wealth have you accumulated relative to time left to work?
How much do you owe relative to what you own?
How much skill and experience do you have in respect to investments?
How immune to investment variation emotion are you?
There are dozens I suppose. You get the idea. Your financial plan matters only to you. Relativity does not matter much.
That Warren Buffett can make 20% a year or that Bill Gates is worth $80 billion makes no difference whatever to you. Although you might learn a little of their approach to investing.
Your only goal should be sufficiency. Will I or do I have enough? If yes and yes, you can say you are done.
Comparing performance to anything is a losing game. It is especially a losing game if you compare to the best performance of others. It is ridiculous to look frequently. You will see market noise and very little of the long term return signal. The noise is what frightens people. The signal is reasonably constant.
When someone does not value, or even know, sufficiency, they often seek heroic returns. That can fail in unpleasant ways. Consider Warren Buffett’s observation about Long Term Capital Management, one of the most successful hedge funds in the mid-90s.
They had 16 people who together were smarter than any other 16 people in any business in the country. They had experience. They had their own money in play. And they failed.
The key thought about them is this:
“To make money they didn’t have and didn’t need, they risked what they did have and what they did need.”
When you understand sufficiency, you will be less inclined to take risks with money that you need, to get money you do not need.
I think women understand this concept better than men.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772