Investment benchmarks are kind of like all those random signs you pass on the road.
Sometimes, they’re informational. Sometimes, they’re entertaining. But all too often, they’re just downright distracting.
And if you put too much focus on the wrong ones, you could end up hurting your chances of ever getting where you want to go.When Online Investing Turns Deadly: Lessons from a Robinhood Trader’s Suicide
Unfortunately, all too often, investors do just that. Their attention is diverted by a benchmark that doesn’t necessarily apply to them or their plan — such as the S&P 500 index— and it can lead them astray. Suddenly, they’re moving out of their comfort zone, driving faster than they should, and maybe even taking a wild turn off the road they’re on despite the added risk of getting into a crash or running out of gas.
There’s little point in constantly checking your progress against an index or someone else’s portfolio results if they aren’t relevant to your investment strategy or your unique needs. The only measure you need to monitor is how you’re doing when it comes to your own goals, risk tolerance and timeline.
Here are some things you should be thinking about — and planning for — on the road to retirement.1. What’s your destination?
A lot of people have no idea where they’re going in retirement. They haven’t even thought about the income they will need to replace when they don’t have a regular paycheck anymore. So that’s the starting point: How much will you need to pull from your investments to have the lifestyle you want? When do you hope to retire? How many years do you expect to be creating your own paycheck? Where will the money come from (Social Security, a pension, your 401(k), a Roth IRA, or some other source) and in what order?
Your income plan will be your roadmap in retirement — but it also will help guide you as you make your way toward that goal.2. How fast or slow do you want – or need – to go?
Once you know where you’re going, you can choose the right investments for the journey based on the risk vs. the reward. If you jump into an overly aggressive strategy, you might get to your destination faster — or you might not get there at all. On the flipside, a strategy that’s t