Plan Your Prosperity: The Only Retirement Guide You'll Ever Need, Starting Now--Whether You're 22, 52 or 82

Picking an Appropriate Benchmark

You can’t get a benchmark recommendation from a book. Nor can a book give you an appropriate asset allocation recommendation—the book doesn’t know you, your situation or goals. It can’t possibly. (It’s a book.)

However, you can use the concepts and principles provided here to help you determine what’s appropriate for you or aid in a conversation with a professional.

Remember: An appropriate benchmark should help you increase the odds you achieve your long-term goals. An inappropriate benchmark might seem like a good idea initially but could set you up for major disappointment down the road.

What’s more, in conjunction with determining an appropriate benchmark for your goals, it’s critical you understand the risk and return characteristics of that specific benchmark so you can understand—and be prepared for—how much shorter-term volatility you’re likely to experience. Volatility isn’t bad—finance theory says to get growth, you must experience volatility. And don’t forget, volatility goes both ways—up and down. But shorter-term downside volatility can sometimes be difficult to experience.

If you’re working with a professional, an additional benefit they can provide is helping you understand expected risk and return characteristics of an appropriate benchmark. And he/she can also help you remain disciplined when times are tough. As discussed in Chapter 2, failing to stick with a strategy is one major error many investors make, and it can seriously ...