“Beating or meeting some arbitrary index does not matter in the least,” says Amit Chopra, Managing Partner at Forefront Wealth Planning and Asset Management in Ramsey, New Jersey. Sometimes that “800” test score isn’t the right benchmark. Only then will you know what’s required to attain that dream. You must determine your real lifetime goal for yourself. You may be better suited attending a school that can lead to a job that pays better more quickly. It may not give you the education you need. Returning to the analogy, sometimes attending an Ivy League school isn’t in your best interest.
“Investors focusing on index returns often miss the forest from the trees of what they’re trying to accomplish.” “The most important factor for most investors is not whether they can ‘meet’ or ‘beat’ an index, but rather whether they can ensure a quality retirement and ensure that they do not outlive their money,” says Dimitry Farberov, Investment Adviser at Miracle Mile Advisors in Los Angeles. The anchor is an easy way to measure yourself. That’s the anchor by which you judge yourself. That’s the number that sticks in your mind. Indeed, you want to score a perfect 800 on each exam. To get into the best schools, you’ll need to score as high above average as possible. To gain admittance into college, you need to take an entrance exam like an SAT. It’s best explained using an analogy anyone who has ever applied to college might be familiar with. Taking on unnecessary risk might actually harm an investor in the long term.”
“It may not be necessary to match the S&P 500 rate of return over a 10-year period to meet your goals. Kurinec of the Bentron Financial Group, Inc. “It’s inappropriate to use the index as a benchmark when you do not need to take on that much risk to achieve your goals and objectives,” says Gregory J. And that places you in the precarious position of losing more than you can afford. If you purposely choose to invest in index funds, there’s a good chance you’re picking the wrong measurement. You pick it merely because it’s most prominent in your mind or extremely convenient. In behavioral finance it’s called “anchoring.” An anchor is an arbitrary milestone (or benchmark). These funds imply your benchmark should be that index. This is the mental trap set by index funds. The obvious answer proves the old adage “you can’t eat risk adjusted returns.”
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