Financial Benchmarks Investors Should Consider To Gauge Performance

Pimped Out ride

There’s one simple observation I’ve noticed in my journey towards financial freedom. Rich people make things more expensive for the rest of us. Given the supply of desirable necessities such as homes, schools, food, and even water is finite, the rich bid up prices far beyond what the middle class can afford.

I remember back in 1995 thinking $20,000 to go to a private university was ridiculous. Now such a private university costs $50,000 in tuition. Ridiculous again, especially with the internet providing so much free education now. Did the median salary increase by 125% in the past 18 years? No. The median wage actually fell 8.9% from its peak in 1999 to around $50,000 per household. That is a double ass kicking!

I remember wanting to buy a sweet two bedroom, two bathroom, double balcony condo in Manhattan with a view of the Chrysler Building and Madison Square Park for $720,000 in 2000. The problem was I only had one year of post college savings and stock gains under my belt and had to borrow about $50,000 to achieve a 20% downpayment. The cost of the 1,350 square foot condo is now roughly $1.7+ million dollars sadly enough. Just take a look at the price per square foot values of ultra high end property and you’ll see an increasing spread compared to the value of median priced property. Someone with enough money bought the place and is now that much richer as a result.

As my portfolio grew over time, I became much more risk averse with my investments. With the Asian financial crisis in 1997, the Russian Ruble collapse in 1998, the stock market implosion in 2000, and the mortgage market meltdown in 2008, it’s hard not to come away with a more conservative investment style.

Now that I’ve built up a livable passive income stream, I’ve gravitated more towards absolute return once again. So long as I don’t blow up the principal portion of my passive income stream, it’s risk-on. We should strive to outperform the competition, especially if we have the buffer to do so. In this article I’d like to discuss the various benchmarks you should consider using to measure your performance based on your wealth and risk tolerance.


* The S&P 500 Index. The easiest and most common benchmark if you live in America is comparing your portfolio’s return with the 500 largest stocks in the country. I’ve taken things a little further and have benchmarked my entire net worth growth compared to the S&&P 500 index. In essence, I run my net worth like a multi-strategy fund comprised of real estate, equities, bonds, private equity, CDs, and now even a little entrepreneurship. Using your country’s broader market wherever you live is a straightforward way to go.

* Risk Free Rate Of Return Times A Multiple. The risk free rate of return is the 10-year bond yield which changes every single day.  You need to figure out a reasonable multiple on that bond yield because you are guaranteed to return the yield if you put all your money into treasuries. What rate of return over the risk free rate (equity risk premium) do you require? My simple formula is to take the latest 10-year bond yield and multiply the figure by 3. If the 10-year bond yield is at 2%, then my investment target net of fees is 6%. Maybe you are more conservative and would like to use a 2X multiplier instead. It’s up to you to decide.

* Sector Specific Exchange Traded Funds (ETFs). If you work in the real estate industry and invest in REITs and homebuilders, then perhaps you should consider benchmarking your financial performance to a homebuilder ETF such as ITB, XHB, or PKB. If you work in pharma at Genentech, then consider ETFs such as PJP, IHE, XPH. If you work in finance and own your bank’s shares as part of your annual bonus, then maybe indexing yourself against XLF is a good idea. Whatever industry you are in, there is an index or an ETF for you to use.

* Consumer Price Index. The CPI is produced by the Bureau of Labor statistics and is often maligned as an unrealistic guage of inflation. For example, the current CPI is roughly 1.5%. How can this be if tuition and food prices are soaring? The CPI should be considered the base case benchmark for everyone to beat. Here is some inflation info for the past 10 years. Like the 10-year Treasury yield, I’d put a 3X multiple on the published CPI rate as an investment return target.

* The Case/Schiller Home Price Index. The Case/Shiller Home Price Index has risen to be the authoritative benchmark for real estate performance. The Index breaks down home price growth by region. Given we’ve discovered that a lion’s share of the median net worth in America consists of property, then the Case/Shiller Index should be a relative good barometer for the median American.

* Hedge Fund Index. Hedge fund managers are supposed to be masters of the universe. Unfortunately, they suck a lot of wind in a bull market by nature of their mandate to hedge. They have absolute return goal where investors expect them to continuously make money even during recessions. One of the most widely followed hedge fund ETFs is HDG.  The HDG is designed to reflect hedge fund industry performance through an equally weighted composite of over 2000 constituent funds. The shares are up a dismal 1.5-2% at the time of this post compared to a 13-15% YTD return in the S&P 500.


* Your Parents At Your Age. Here’s a fun one everyone can consider. Ask your parents or older relatives what their net worth was at your current age. You’ll have to then inflate their values in today’s dollars to make the comparison more true. Did your parents own a home yet? Did they still have student loans? Where were they in their career? Our elders are the greatest source of wisdom. It’s always interesting to learn lessons from our parents so we can avoid mistakes they may have made.

* The 1/10th Rule For Car Buying. One of the key motivators since college to boost income is the 1/10th rule for car buying which recommends that people shouldn’t spend more than 1/10th of their gross income on a car. Hence, if I saw a colleague, friend, or acquaintance buy a $30,000 car, I would assume that s/he is now making $300,000 a year through W2 income, stock investments, and various other sources of income. To not make $300,000 a year would be illogical given everybody I know would rather have more wealth. I realize that not everybody will have heard of or will follow my 1/0th rule, but I use it anyway to gauge peer income. Believing in this rule gave me the drive to make more money than I thought possible.

* The 30/30/3 Rule For Home Buying. The 30/30/3 rule simply states that you you should spend no more than 30% of your gross cash flow on a mortgage payment, have enough cash for a 30% downpayment split between a 20% downpayment and a 10% buffer, and a house should cost no more than 3X your gross income. The housing downturn revealed how overleveraged people were because they didn’t make enough and put way too little down. If someone owns a $600,000 home, I assume they make at least $200,000 a year with a net worth of around $180,000 to $1.8 million dollars depending on age if they follow my net worth asset allocation recommendations. The 30/30/3 rule allows one to gauge their income and asset accumulation progress.

* Freedom Factor. Although my friend Jaabir hasn’t had a steady job for three years, I consider him one of the wealthiest people I know because he gets to play tennis for five hours every single day. I don’t care how little you make or how small your net worth, if you get to do what you love every day and not have to work too much for money, you are in the top tier of wealth. It’s hard to assign a specific value or scale to the Freedom Factor benchmark. Right now I just divide things into those who have to work and those who do not have to work for money.

See if the average net worth of five peers comes close to equaling your own. You’ll have to make some guesstimates based on their visible assets in this terrific world of stealth wealth.


Whatever benchmark you use to gauge your financial performance, make sure you have something to measure whether you’re heading in the right direction. Although my base case benchmark is 3X the risk free rate, my aspirational benchmark is to have my overall net worth beat the S&P 500 when its returns are greater than 3X the risk free rate.

Given my roughly 30/40/30 split between stocks, real estate, and CDs, I’ve got a 30% drag on my net worth given my blended CD return is only around ~3.5% a year. As a result, I am working on my X Factor to make sure my net worth keeps up with the S&P 500 index. It gets harder and harder to keep up as your financial nut grows because of risk aversion.

Figuring out where you stand is a timeless pursuit. It’s the reason why The Average Net Worth For The Above Average Person post continues to receive a huge amount of search traffic. But after you know, start focusing on things that matter most to you and do your best to forget about comparisons. Sometimes just moving forward is good enough!


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You can buy a basket of 30 stocks for only $9.95, instead of buying them individually for $7.95 through a typical broker. You can build your own motif, buy one of the motifs created by Motif Investing, or buy a motif by a fellow Motif Investor with a great track record. You can even buy retirement motifs, much like target date funds, except you don’t have to pay the 1% management fee. You get up to $150 free when you start trading with Motif Investing. Given my focus on buying winning long-term ideas and ignoring the short-term volatility, I really like Motif Investing’s value proposition for retail investors.

Updated: 12/1/2014. Let the bull market continue. Just don’t forget to rebalance and manage risk.

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. says

    Those are some big rims on that car not sure they probably wanted to go 26″ and add spacers. I have always believe in the 1/10 rule for cars even before I heard of it. With the home I completely agree with 3x your income or less if you can. The benchmarks I use are really things that matter to me. I don’t compare to other but I know where I want to be in life and I work towards those goals. Spending time with my family and living in a safe neighborhood is what I want in life. Prices keep going higher and higher and before you know it a Honda Accord will be $40-50k average price. And people will still be driving them even though their income hasn’t increased.

    • says

      Hence, better to be a price setter and asset owner rather than a price taker.

      I was shocked when Corollas and Civics all started breaching $20,000 several years ago. Now I realize that many people can afford $20k cars because many people make $200k a year or more. The realization gave me so much motivation to do better at work to make more and it paid off.

      • says

        I prefer to buy gently used vehicles. One’s that have come off of lease, or were used as temporary vehicles by a dealership. We paid all of $11k for our 2 year old Corolla about 5 years ago and I’m quite happy that we did. That would have put us slightly above the 1/10 rule, but trading in a 9 year old worn out Escort was very comforting.

        • says

          Cool. The 1/10 rule for a benchmark can help folks guesstimate another’s income and maybe wealth. Hence, $110,000 or so would be the figure I’d have in my mind for you if we just met at a party etc.

  2. Dave says

    Great topic. I benchmark my personal performance and strategy off my peers. While benchmarking my equity portfolio is easy against the S&P 500 or other index’s, I like comparing my overall strategy/situation to my peers on this forum and others.

    I gain lots of insight from reading individuals stories and seeing their net result. I often compare net worth, 401K balances, and retirement planning strategies. That’s why I enjoy visiting sites like yours that brings financially savvy people together. One challenge that I do find with this approach is comparing myself to those who are older and naturally have more years to invest/save and acquire assets. That’s why its important for me to read about individuals in my similar situation: late 20’s, professional career and financially independent goals/aspirations.

  3. says

    I use the S&P, Dow, and the risk free rate most often. I didn’t realize there’s a hedge fund index. Those returns are terrible lol. I never thought about using my parents at my age as a benchmark. They have never been good with money so they aren’t the best comparison.

  4. says

    Sam, I’ve used a 7% rule for gauging my investment performance and for thinking long-term (30 years out) to project what I might accrue. However, I think it is just because I like the number 7 and not that I’ve found a more legitimate benchmark to compare against. It’s over 3 times the risk free rate of return, so 7% seems aggressive when looking at it like that.

    I wonder if there are some quick resources that show the return of the S&P 500 every year as well as some of the other things you’ve mentioned. It would be nice to see if I’m beating the market every year (or not). I’d love to enter my end of year net worth and current net worth and have a web page spit out my performance against various index and risk free rate of return multipliers. Hmmm, that gives me something to think about :)

    • says

      Good thing you’ve got some IEF which climbed 0.5% like a champ in today’s 1.5% smack down!

      A 7% annual goal is very fair. Coming up with a why 7% is good to do and not just think bc it sounds good!

  5. says

    For my equity portfolio, I use total US stock market and total foreign ex-US stock market indexes for comparison. I don’t hold any bonds, but have a substantial share of foreign equities, so I found these two benchmarks to be the most accurate.

    I actually haven’t been tracking performance of my rental properties, although perhaps I should start…

  6. says

    Finding the right benchmark is something I’ve thought a lot about, but have never been able to decide on. I naturally compare my investment returns to those of the S&P500, but part of me thinks that using an alternative investment as a benchmark would be more helpful.

    For example: If I put no thought or effort into my investing habits I would probably just plow my $ into a target date retirement fund, so if I use that fund’s performance as my benchmark I can get a better gauge on if I’m helping or hindering my progress by making my own investing choices.

    After reading this post I think I like the risk free rate x a multiple as the best method, because it allows you to track your diversified investment types against a realistic alternative.

  7. says

    Great topic Sam. I typically look at the S & P and the RFR more often than not. I know it can be easy to compare to what others are doing, but I’d much rather focus on what we’re trying to achieve and keep our eyes focused straight ahead at our goals and measure that off of what the market is doing as a whole. It can be easy to do that when times are good and fretful when the bears are running…thus why it’s so important to stay on top of your investments. I did not know there was a Hedge Fund index, thanks for teaching me something new today. :)

    • says

      Yeah, there are actually several hedge fund indices and ETFs since there are at least 8 different investment styles in the space eg risk arb, converts, etc.

      Overall HFG’s performance sucks!

  8. says

    I will disagree with you, rich people do not make anything more expensive for you or anybody else. Expensive homes will not sell unless there is demand for them and the same goes for cars etc. Rich people do not want to overpay for anything either. The value of the condo in NYC was what it was and you needed a larger down payment.

    I do not use too many benchmarks for investing because I have an internal one to reach various goals. I may look at the various index performance benchmarks for my funds. My stocks seems to beat those benchmarks on a hit and miss basis. Some of my stocks increase counter to the market which is a good hedge for volatility. It is good my stocks do not make up a big percentage of my portfolio.

    • says

      Just take a look at the increase in super high end homes in London, Manhattan, SF compared to the median homes and I’m sure you’ll agree. The price per squarefoot in the high end has gone BerZerk.

      To help you think about the concept easier, view prime property as the top of a triangle with the base getting wider and wider.

      There has been an increase in wealth inequality over the past couple decades as the rich have gotten richer. I’m surprised you are not aware of this.

      • says

        I am very aware of the inequality of income. The rich always become richer in these recessionary times. High end homes are going for astronomical prices partially due to the cost of replacement, but also they may one of a kind. For example, 3 acres in Beverly hills will go for a lot more money because it is rare and will never occur again. Using your triangle example, there are fewer properties at the top and fewer buyers. The buyer of the Spelling house (56,000 sq. ft.) went for $85 million. I wonder how many people could and would want to buy a $85 million home. The upkeep must be millions a year and property taxes is $1.6 mill a year.

      • JayCeezy says

        FS, one point on London, NY, SF. They are all metro hubs with lots of highly-compensated jobs. Jobs drive RE prices. Most of the country isn’t anywhere close to where RE values were in 2005. If you bought your primary residence in the mid-2000s, your annualized gain is probably not as impressive as your two-year gain.

        As far as inequality, there was really only a brief time in western society where there was a significant middle-class. I’m not sure what would reverse the trend, other than taxation and redistribution. It will be interesting to read your posts in the future, as you encounter other nations where the people have less material possessions but are happier.

        @krantcents, Casey Kasem just put his Holmby Hills mansion on 3 acres for sale at $42 million. You can google it, the pictures make it totally worth it. I am looking to go in on it with 83 roommates, let me know if you are interested.

        • says

          83 roommates is not enough, the carrying cost will crush ordinary people like us. If I had the cash, I would buy multiple homes or apartment buildings. It is similar to stock, you would not put that much cash in any one stock, would you? It makes me wish I was that 84 year old grandmother in Florida who won the $590 million lottery. It could be very interesting to have that much cash to invest! I definitely wouldn’t want to be the guy who let her go ahead of him in line that day.

  9. says

    I currently use the S&P500 as a benchmark for myself. If I can’t at least do as well as the S&P I should probably just invest in index funds and free up all the time I spend investing.

    I also use current dividends vs expenses – since once those two are equal I’m financially independent.

    I’d like to start using the hedge fund index as a benchmark.

    • says

      Can’t beat em, join em as they say.

      You will quickly become disinterested outperforming HFG since it’s returns are so terrible. In a down market, it will be a better benchmark.

  10. K says

    Great article! New to the website and I love it. I’ve been obsessed with it for the past week and having been reading it non-stop.

    This 1/10 car buying rule…great to tell yourself that others follow it as an internal motivator, but for me, it would be tough to actually convince myself that it’s true and make it work as a motivator. I’ve never really cared about cars because it’s such a horribly depreciating asset, but what car you drive is VERY high priority around here. This is the land where a guy will have a Lambo but rent a 2 bedroom apartment with 4 friends (true story). I actually once lived in a complex that had several Ferraris, Bentleys, and Lambos, and the rest were Mercedes, BMW’s, or Range Rovers. Yes and I still had my 02 Civic. They probably thought it was the Janitor’s car. What is even funnier though is that I just heard that one of the Ferraris is actually owned by 4 guys who all went in on it and they take turns using it! HAAAAAAA!

    Anyway, when I lived there I was making $100K/year fresh out of college (yes I am in Finance). I knew that they weren’t millionaires. I knew that most didn’t make more money than me. I wised up quickly and moved out of course…obviously I didn’t quite fit in. It’s been 4 years and I just hit the $220K/year mark. Cars have never been important to me but with the disposable income I have now…I’m feeling the pressure to get a nicer car.

    Luckily instead of doing that I went in search of personal finance sites and started researching how to grow my wealth, which brought me here. Instead of wasting it on a car I’d rather save aggressively and grow my money using the techniques you discuss here. Thank goodness I found this site!

    Sam, do you ever get tempted to buy a nicer car? Or nicer whatever it is that is important to peers where you live in SF? Have you ever indulged? What do you choose to indulge in with your disposable income?

    • Jason says

      Just thought I’d chime in here – wow, driving a lambo and still having room-mates. I don’t know about you but that would make me feel like a failure, not a success.

      I definitely see your point about the car, K. In the parking lot at my work, there are quite a few Maseratis, Ferrarris, etc. but when I walk by them, all I really think is what an absolute waste it is. What money they spent on the car could have actually *done* something useful for those people. But, it’s not my place to say anything, so I just shake my head, start up my 25 year old beater, and head back home.

      In short, don’t succumb to it. But, if you want a *great* looking car without spending a fortune, shop on craigslist for a Mercedes 550. New, these cars are about 100k, but they depreciate so rapidly, one that’s only a few years old sells in the 20k range. That’s a whopping 80% loss. Just doing this car-hunt should help put things into perspective.

      • JayCeezy says

        @Jason, chiming on your chime…I had a roommate, he had a Porsche but no insurance. He once broke a brake cable, and drove it home 2 miles at 3am through red lights with no brakes, and stopped it on the garage door. The brake cable was $120 (garage door spring, $14), and it sat in the driveway for 2 weeks. It was repossessed.

        • Jason says

          Wow, quite the story! I think this type of paycheck-to-paycheck lifestyle is becoming a world-wide phenomena and finding someone who practices personal financial discipline is becoming rare.

          I recently visited a formerly-communist country and I was told they have a lot of financial problems with the new generation. The previous generation were under communism and so they didn’t ever learn about credit, financing, debt, etc. So when the good jobs started coming over, the young workers had the money but no insight from their parents. Now, it’s very common to see someone that’s all flash and one paycheck away from disaster.

      • K says

        I know, right? So hilarious though isn’t it? Gosh cars suck as investments. They are not investments. They aren’t even hard “assets”. From a business standpoint they aren’t even income generating–unless you need it to get clients. It’s a consumable good. But in image conscious areas/companies it is “THE” most important consumable good. GAH! Horrible.

    • says

      Always good to have new readers K! I was a car NUT when I graduated because u drive a piece of crap starting junior year. Before then was a bicycle to pick up the girls so I was itching to buy my own love mobile. You’ll enjoy this post: I had a $75,000 car once for 1.5 years and sold it to buy my main rental 10 years ago.

      To answer your questions, I definitely have urges to buy a nicer car but whenever I see the prices at the dealership I back off now. Instead, I just go to the dealership, inhale the new car smell, test drive all the cars I would enjoy buying and then call it a day. It’s the most fun, free entertainment around! Besides, I love my 13 year old truck named Moose!

      I indulge in travel vacations mostly eg $15,000 – $20,000 a year. Housing is another item I don’t mind spending money on bc at least it’s an asset which could increase in value.

      • nbsdmp says

        I’m a car nut, I don’t break the 1/10th rule (yet) on any car purchases in any given year, but because I’m an addict I do have a few cars. My general rule of thumb is not to allow the value of my cars exceed 10% of my liquid net worth (not including the cars). Some people are lucky and don’t care about cars, but if it is your DNA and it is what you love, hell that is what life and money is about…enjoy what you love, but be responsible. Always pay cash, that is the true telling sign if you really want something or not. I resisted the urge though until all the other bases were covered.

        • Jason says

          Oooo, looks like I gotta chime in here again! The temptation is too strong!

          “Always pay cash, that is the true telling sign if you really want something or not.”

          I just bought a car recently and, even though I had the cash, the best move I made was to get a loan on it, mainly because of the very low interest rate.

          The money that even a “modestly-priced” car will cost you these days is sometimes enough to buy a small investment property (or other investments), so why wouldn’t you put that money to work for you rather than sinking it all into a large hunk of metal?

          That being said, it all depends on the conditions of the loan.

        • nbsdmp says

          Jason, I get where you are coming from…I agree money is cheap, but honestly if you had the cash and chose to get a loan, you bought too much car for your current financial situation. If you want to build real wealth don’t borrow money…the cash you think you are investing and making so much more than the loan you took out probably sits there and then you decide well I can afford that vacation or some other “want” because “hey, I have the money”. I buy my fun toys with my passive income from investments I’ve built slowly over time. To each there own, and I can’t argue the math with you, but I can tell you I haven’t borrowed a penny in over a decade, I’m 42 years old and that single philosophy has made life very easy and rewarding. The 911 Turbo S seems to ride a little smoother knowing its paid for…

      • K says

        SAM! I didn’t know you had such a vice at one time! I just read that article and I don’t mean to be an enabler but if you are the kind of guy who likes to have a new car every year, you could just get a 12 month or 18 month FMV lease and then payments would be a 100% tax write off (if you put it under your business).

        My vice was jewelry (I’m a female). But like you, I approached it still with a dealmaker’s/investor’s eye, I bought on the secondary market at 25-50% of retail. I sold most at a profit or broke even. I kept the more valuable/collectible/antique pieces which have appreciated in value and continue to appreciate and add to my net worth. You said in another article that there is something very appealing about having a hard asset that appreciates in value that you also get to enjoy using, that’s how I felt about jewelry but I realized it was really just an addiction. My new addiction is PF now!

        Back to cars, I obviously don’t need a love mobile because, well, I’m a female…but even though I moved from that old d-bag neighborhood, as I move up the ladder at the office there is pressure to have a car that “belongs”. Incomes aren’t a secret at work, it’s already a competition, so they all know what you can afford, and, erm, they don’t follow the 1/10 rule. I’ve been looking at a used Maserati, but I’d keep it. I wouldn’t feel the need to sell it, ever. The Granturismo can be had for “only” $50K. Bet I can talk them down to under that. And if I wait till next year I bet only $40K! Quattroportes can be had for $20K now!!! Oh man are these bad thoughts or what?

  11. says

    I love the idea of comparing to my parents at my age. Interesting point to use to gauge how I’m doing.

    For most of my investing, I just compare to the S&P. If I can’t keep beating it, I will just buy it.

      • K says

        Sigh….not for me. My parents are lower middle class immigrants that were always very bad with money. Love my father very much as he was always reliable, had excellent morals and values, and was and still is a highly intelligent man, but I just did not learn personal finance from them at all and they aren’t/weren’t role models for it. Just figuring it out now. They don’t even teach PF in schools. They should! Should be a required class for all graduating HS students.

  12. says

    I have never really compared myself to an index but off the top of my head I think I would go for the freedom choice. Who cares if you return 6, 18 or 29% if you are financially set?

  13. JayCeezy says

    Here are some questions that would be good to know the answer to, for everyone (my answers in parenthes):
    1) What percentage of your Net Worth is due to savings, as opposed to returns? (51%/49%, over lifetime)
    What is your current Beta? (.08, 1 yr)
    What is your current Alpha? (-.01, 1 yr)

    I was always one of those people who thought I was doing “pretty good”, as I didn’t distinguish the NW increase from savings, as opposed to investment returns. One of my financial mentors suggested tracking it (separating out new savings from earnings), against an Index. Once you set up a spreadsheet, it is easy to update; I do it annually. But it was a real eye-opener to see some comparative analysis. Turns out I was not even matching a Total Market Index, not just once, but year-after-year. Unknowingly, I was using my entire portfolio as a “punt” bucket!:-) But what turned it around for me was the subject of this post, tracking performance.

    Tracking performance is great for anything; weight loss, sales figures, website hits, and investing. Most people interested in PF just track their Net Worth, and it doesn’t matter if it is achieved through savings/work (the most consistent way, with much lower risk) or investing (choosing utilization of existing capital). The Net Worth figure is what will hopefully allow financial freedom.

    It is pretty rare to meet anyone who does track performance against any benchmark, especially for any significant duration. I have had professional brokers tell me the Wilshire 5000 contains 5,000 stocks. Not one (except FS) has ever admitted to underperforming an index, just like no parent will admit their child is below average.

    What the FS has done, at such a young age, is remarkable. Outperformance, whether in investment returns, exceptional compensation, exceptional savings rates, “X factor”, etc. is very much worth striving for, especially early in the investment lifecycle when the risk of time can be mitigated. But financial independence is possible for everyone, with diligent savings and goal-setting and tracking performance.

  14. says

    I’m trying to gauge my investments off the S&P. Need to do better then that to be successful in the investment front in my mind. I think for other things, the gauge if you are ahead of your parents are works well. I bought a house at 22, my mom was far older when she bought hers. She retired at 52, which was quite early compared to her co workers. So that’s my big benchmark, retiring before 52 and I did well comparability. (Aiming for much earlier then that btw)

  15. Maverick says

    Yep, couldn’t agree more, you need a benchmark to compare. FS, care to share how your 40% RE is doing against the Case/Shiller Index & Vanguard REIT? Furthermore, I’m thinking this may be the peak now for RE as the interest rates start to slowly creep higher. The only positive is that CD rates will slowly climb higher too. What are your thoughts on commodities?

    • says

      Pretty good. My RE portfolio is mainly in SF where prices went down about 15% from peak to trough and prices seem to be beyond record highs now. The market is actually nuts with inventory still down 40% YoY. I’m waiting for a condo to close on my block. It looks like it will sell for more than I bought my house, which I never would have imagined. The condo is a complete remodel though. I also raised the rent of my primary rental by 12% starting this month, which is the main goal for rental properties.

      I expect a cool down too, but I don’t think rates are going anywhere for another couple years. How is your RE portfolio doing and what is your net worth split? I noticed some very violent sell-offs in the REIT industry recently by a magnitude of 20% for names like O. Those are the violent moves I do not joy, hence my preference for physical real estate. Are you buying more?

      • says

        Interesting mention of REITs. I picked up some AGNC at a low point – a gamble I think will pay off as the dividend announcement should be soon and I’m hoping it’s close to what is was last quarter. As always, I could get burned :)

  16. says

    I like using 3x the long bond as a requirement for free cash flow yield for my investments. It’s not a bad prerequisite for returns, either, at 9.7% per year right now. Graham would advocate an earnings yield equal to 2x the yield on AAA issues, but low historical lows call for a little more wiggle room. Either way, it’s a solid way to approach an investment for a quick smell test. Not a bad benchmark for performance, either.

  17. Jenny @ Frugal Guru Guide says

    “The rich” aren’t bidding up basic necessities beyond what the middle class can afford. In your examples, SUCH high rents are caused by rent control and by bad government policies that artificially limit the supply. You know that, based on your last article about renters voting to raise property taxes and then complaining that rents go up as a result. Some part of it is a truly (geographically) restricted supply, which leaves the middle class plenty of other places to live not that far away, or because the place is truly luxurious, or because of clever marketing. None of these things actually hurt the middle class as it leaves a huge proportion of the market unaffected.

    Also, college prices are NOT going up because of “the rich” but because financially foolish people are taking out unlimited loans to pay for college degrees that will never yield a decent ROI. Millions of ordinary people making bad financial decisions based on easy money (caused by government interference AGAIN) are encouraging schools to inflate their prices, just like easy credit caused the housing bubble.

    • says

      In San Francisco, increasing rents are actually caused by people with increasing salaries bidding up prices for a relatively fixed supply.

      The rich make things more expensive for everyone.

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