So what if your investments have doubled
We’ve all heard it. Friends, family, acquaintances even mentioning that their fund has gone up 25% in six months or their investments have doubled in a year…..And no doubt there is a little twinge of concern if your funds haven’t performed as well – the green-eyed monster may even raise its ugly head. But my response to these comments is always ‘so what?’ It may surprise you that, despite being a financial advisor, I see these statements as pretty meaningless.
Knowing what success looks like
Here at SK, we always see the most important part of investment planning as understanding what people want to achieve – we call these our client outcomes – and helping them live the life they want to live. It may be that someone wants to invest money so that they can retire in five years’ time and still draw down enough income to enjoy all the things they currently do. It may be to pay for future education, to go off travelling, to start a new business even. There are all sorts of reasons why someone wants to invest their money.
Without understanding what someone wants to achieve with their investments, there is no way of being able to judge the success of their funds. So, someone’s fund may well have gone up 25% in the past six months, but if they’re not going to touch that money for the next 10 years, what does performance in these last few months really matter? You need to look at how the fund performs over the time they’ll hold it and if at the end, it allows them to achieve what they wanted to. If not, does it matter that it went up 25% in that period? Nope.
2. Worth the paper it’s written on?
The other reason follows on from this. Of course you need to liquidate your investment before you actually get the money. If it is still invested, it can still go down – you could lose a lot more than you have just gained. You will not benefit financially from any rise until the cash hits your account.
Obviously if your objective with the investment was to see a 25% increase in six months, so you instantly cash it in and pay for a new car, then great, the investment was a success. But if you’re going to leave the money in there, that additional money is not yet guaranteed to be yours. Shouting about these kinds of gains is more an exercise in pure vanity versus anything else. So remember, next time someone mentions the ‘great’ performance of their funds, don’t take it at face value, dig a little deeper and I believe you’ll keep the dreaded green-eyed monster at bay.