Why Market Returns and Peer Stories Fail to Measure Your True Financial Health

Asking 'How am I doing?' is one of the most useful questions in life. Stopping to take stock in any area allows us to correct course while there is still time to make a change. Naturally, this applies to your financial life as well, forming the core purpose of regular planning meetings with clients.

However, when people evaluate their finances, two common numbers usually become the default benchmarks: the market return and the investment stories shared by friends and acquaintances.

Neither number provides an accurate picture of your personal progress. A market index has no personal goals, children heading to university, upcoming income requirements, tax positions, or specific time horizons. Comparing your financial plan to an index is not a true comparison.

Furthermore, a properly diversified portfolio will almost always lag behind the top-performing asset class of any given year. Diversification is designed to function this way, and identifying last year's market winner in hindsight differs greatly from picking it beforehand.

Similarly, peers boasting impressive returns rarely mention the underlying risks. Investments may rely on concentrated holdings, leverage, or capital that the investor could afford to lose. People only share success stories, omitting the bets that failed.

A more effective approach is to evaluate whether your portfolio fulfills its intended purpose and sustains the lifestyle you desire. Five essential questions should be revisited annually, ideally alongside a financial life manager:

• Am I on track to fund the life I want?
• Is my savings rate where it needs to be?
• Will my income last for as long as I do?
• Have I avoided any permanent mistakes?
• Is the money buying a life I actually want?

The final question is frequently overlooked. A financial plan can remain entirely on track while funding a lifestyle you never deliberately chose. Answering honestly requires reviewing past spending and determining whether you would make those same choices again.

If any of these five questions yield a negative answer, practical adjustments are available—such as saving more, spending less, altering withdrawals, or rescheduling planned events.

In contrast, market indices remain entirely outside your control, meaning past returns offer no guidance on future actions. What we measure dictates our behavior. Judging progress by an index or a peer's anecdote often leads to fixing a portfolio that was never broken, whereas focusing on controllable factors provides practical steps forward.