Are You Comparing Your Retirement Investment Returns To The Right Metric?
I often hear people discuss “good investment returns.” What is a “good” return? Does that simply mean a return that is not negative? But can that actually mean that the returns are consistent with a person’s values? Let me explain.
In my role as a CERTIFIED FINANCIAL PLANNER™ professional, I am accustomed to qualifying investment performance by a combination of risk and return. This requires looking at returns over a long time horizon, such as 10 years or more. That allows us to observe the movement of a particular investment, including an average number and the amplitude, or variation, of those returns over time.
For example, an average return of 5% may have seen the returns range between -15% and 25%. In this context, is a 10% return “good?” Is a -10% “bad?” When I speak to most people, they judge their returns as good when recent returns, say a quarter or a year, are positive returns.