“Comparison is the thief of joy.”
– Teddy Roosevelt
The tendency to enviously compare our-selves to others might feel unique to the social media era, but it has been around since long before media went social. More than a century ago, the newspaper comic strip “Keeping Up With the Joneses” satirized middle-class Americans’ tendency to assess their own prosperity by comparing it to that of their neighbors. Then, in 1984, the television show “Lifestyles of the Rich and Famous” took this concept to the next level by providing the average American with an unobstructed view of the opulence and privilege of the super-wealthy. The classic comic strip and the regrettable television show both enjoyed lasting success because they tapped into a familiar – if uncomfortable – truth: One’s level of personal satisfaction is often based on relative, rather than absolute, prosperity.
The absurdity of this is readily apparent. A contemporary middle-class American probably has a far better life than a renaissance-era monarch (consider modern healthcare, sanitation, technology, mobility, and physical safety), yet our own feelings of inadequacy might arise if a neighbor comes home with a new Porsche. This irrational angst and jealousy amid prosperity stems from using the wrong benchmark. Using your old college roommate’s Instagram highlights as a benchmark might make you think your lifestyle is painfully pedestrian, but if you choose a more appropriate benchmark, such as the typical person in the world today, or even Henry VIII, your life will compare far more favorably.
A Source Of Investment Angst
Improper benchmarking can rob you of the joy of investing as well. The media tends to highlight sexy investment fads (most recently AI stocks, gold, and cryptocurrencies) and well-known US equity indices such as the Dow Jones and S&P 500. But these are relevant benchmarks only if you limit your portfolio to narrow slices of the investible universe. A wise investor understands the importance of a diversified portfolio that holds a variety of assets, including bonds, US and international stocks, real estate, and often private investments. Each of these individual components has an appropriate benchmark, but there is no single benchmark against which the entire portfolio can be properly compared.
If your portfolio is diversified, it is a mathematical certainty that some of these narrow benchmarks will perform worse than your portfolio and some will perform better. The upside of this trade-off is that diversification reduces the risk that any single one of your investments will annihilate your finances. The downside is that the marketing departments of the Wall Street banks have a strong financial incentive to highlight the best-performing sub-sectors of the markets while conveniently ignoring the under-performers. So, when omni-present, multichannel marketing feeds you only the most exciting areas of the markets while sluggish investments and risk are ignored, it is of little surprise that this benchmark comparison would rob you of some joy.
A More Appropriate Yardstick
From an investment perspective, the only truly relevant benchmark for your investments is your progress toward your own financial goals. In order to create this benchmark, you must first define your goals and construct a plan that will allow you to achieve them.
Ask yourself these questions:
• What kind of lifestyle do I currently want to provide for my family?
• When do I want to retire, and what kind of retirement lifestyle do I want?
• Do I want to help any other family members financially during my lifetime?
• Do I want to leave a financial legacy to my descendants or a favorite charity?
A good financial advisor can help you answer these questions, among others, which is the first step in creating a comprehensive plan that will get you where you want to go while taking an acceptable level of risk and outpacing the silent killer known as inflation.
With a plan in place, you might realize that the hot tech stock of the day or a potential crash in the cryptocurrency markets are not relevant. Your sole benchmark is whether you are on track to meet your personal goals. If you are, then there is no need to ruin your mood by making frivolous comparisons with irrelevant benchmarks.
Given the human psychological tendency to compare ourselves with others, however, the cultural obsession with benchmarking is not going away anytime soon. Social and conventional media constantly bombard us with images of unattainable lifestyle bench marks. Similarly, when it comes to investments, more than three million stock and bond benchmarks are currently being published, so you are very likely to come in contact with at least one that outperforms your portfolio and steals some of your joy.
In 1949, H.L. Mencken defined “wealth” as “any income that is at least one hundred dollars more a year than the income of one’s wife’s sister’s husband.” The fact that we can all empathize with Mencken’s witty observation indicates that comparing ourselves to others is simply part of the human condition that we cannot completely over-come. But if you can control your need to keep up with the Joneses and instead tune out the noise and focus on your own goals as a benchmark, you are more likely to stay grounded and keep your joy intact.