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How do I know my investment portfolio is performing the way I need it to?

The average shoe size for an American man is size 9; for an American woman, it’s size 7. If your feet are slightly larger, however, are you doing better than most?

Of course not. With footwear, fit, purpose and style are clearly more beneficial than a size that is “larger than average.” Yet, when it comes to monitoring their investment portfolios, many investors focus merely on beating the average—such as the S&P 500 index—rather than ensuring that their portfolios generate the returns they require to live as they wish, now and in the future.

At our wealth management company, we know that one size does not fit all.

We listen to our clients extensively to learn what is important to them and what they wish to accomplish in their lives. From these in-depth discussions, we develop a comprehensive plan that translates goals into specific numbers.

We confirm how much wealth clients have now and show them what they’ll need in the future. Moreover, our clients learn how much to save each year and how much their investments need to grow annually, on average, to build the wealth they require to achieve their goals.

How much your investments need to grow is your long-term investment return target. Achieving this annual average return is what’s needed to achieve your goals and objectives. In essence, you are your benchmark. By quantifying these objectives—your hopes and dreams—you determine how your investments must perform. Subsequently, your investments can then be structured to meet your benchmark with the minimum amount of risk.

The quarterly and annual performance of an arbitrary benchmark, such as the S&P 500, does not directly relate to your goals. So, why focus and compare your portfolio’s performance to it? Instead, monitor performance according to your long-term investment return target to ensure that you remain on course to achieve the goals in your plan.

Once you’ve established your long-term investment target return—your personal benchmark—understand how your target is impacted by your annual cash flow. Annual cash flow is all of your income minus your expenses. The more your income exceeds expenses, the more money you will have available for spending or saving. If you can save more each year, the investment return required to achieve your goals will be lower.

Through our firm’s Integrated Cash Flow Management Approach℠, every aspect of a client’s financial life is examined to find additional free cash flow. Finding additional cash flow provides more investable cash. Investing that excess cash allows you to: a) achieve your financial goals more quickly; b) have greater wealth at retirement; and c) reduce the risk in your investment portfolio (by lowering your personal benchmark).

As Al Zdenek writes in his upcoming book, Master Your Cash Flow—The Key to Grow and Retain Wealth, “The Integrated Cash Flow Management Approach℠ comes down to making decisions with the same mindset that well-run businesses apply to their financial situations: applying best practices toward managing their cash flow, finding more investable cash and growing more wealth.”

Do you know your personal investment benchmark, one that will help you achieve what you wish for in life? If not, seek the counsel of a wealth advisor to help you create your personal investment return target. That way, you’ll be more comfortable than you would walking around in someone else’s shoes.

This article was originally published in the April/May 2016 issue of Worth.

Investing and the Economy

Disclaimer: Worth magazine is a financial publisher and does not recommend or endorse investment, legal, insurance or tax advisors. The listing of any firm in the 2019 Worth® Leading AdvisorsTM Program does not constitute a recommendation or endorsement by Worth magazine of any such firm and is not based upon Worth magazine’s experience with, or prior dealings with, any advisor. The information presented for each advisor, including but not limited to any related profile, statistical data, presentation, report, commentary, recommendation or strategy, has been provided by such advisor without review or independent verification by Worth magazine. Any such information is the sole responsibility of the advisor. Worth magazine makes no representation or warranty as to the accuracy or completeness of such information, assumes no liability for any inaccuracies or omissions therein and disclaims responsibility for the suitability of any particular investment recommendation or strategy for any person. Nothing contained in Worth magazine constitutes or should be construed as any form of investment, legal, insurance or tax advice or as a recommendation to buy, sell, hold or trade any securities, financial instruments or assets. Readers are advised to consult their legal, financial, insurance and tax advisors prior to making any investment or pursuing any investment strategy. Past, model or hypothetical performance is not indicative of future results.

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