When I was in my 20s and early 30s, my goal was to always grow my net worth faster than the S&P 500. This is easier to do the less money you have thanks to aggressive savings. Now in my 40s, my goal is to try and earn a return equal to 3X the risk-free rate of return. With the 10-year bond yield at ~2.35%, the target return is roughly 7%.
The more money you have, the more risk averse you tend to become. At least that’s my experience. Further, there’s no need to swing for the fences when hitting singles and doubles can provide for a healthy lifestyle, especially if you’ve already escaped the rat race.
For example, you can invest your entire $300,000 portfolio in the S&P 500 to earn potentially $45,000 (15%) or lose $45,000 one year. Losing $45,000 is not a big deal if you’re making a decent salary and are willing to work for many more years. But if you have a $5,000,000 portfolio and are approaching retirement, shooting for a 15% return is unnecessary because if you can comfortably live off $300,000 a year, then you only need a 6% return.
Some people have tried to make me feel bad about a 10% YTD return on my public investments when the S&P 500 is up 14% YTD 2017. But given my net worth benchmark is roughly 7%, I’m happy with the returns, especially since my private investments are doing well. I was happy when my net worth was 65% lower five years ago, so I’m still happy today funny enough.
In this post, I’d like to review various benchmarks you can follow…