Financial Benchmarks Investors To Gauge Net Worth Performance

Without proper financial benchmarks, you don't know whether you are getting ahead, staying in place, or getting left behind. Therefore, it's important to choose at least one financial benchmark on your journey to riches.

There is one consistent 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.

Inflation Is A Silent Financial Benchmark

The one financial benchmark we should at least keep track of is inflation. If we are not at least beating inflation, we are losing.

Inflation, a key financial benchmark

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 25 years? Unfortunately, no. The median wage actually fell 8.9% from its peak in 1999 to around $50,000 per household in 2012. Only until 2016, or 17 years later, did the real median household income get back to where it was in 1999.

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 $790,000 in 2000.

The problem was I was too poor at the time with just one year of post-college saving and investing under my belt. Even with some folks leaving Manhattan, the cost of the 1,350 square foot condo is now roughly $2 million dollars sadly enough.

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, the mortgage market meltdown in 2008, and the “flash crash” in March 2020, it's hard not to be more protective of my nest egg.

However, in order to not fall behind, I used various financial benchmarks as a sort of coach to keep me going. Let's look at what they are.

Financial Benchmarks To Help You Grow Your Wealth

Your ultimate goal is to grow your net worth large enough so that it can generate enough passive income to cover your desired living expenses. Therefore, you should aim to grow your overall net worth, not just your investments.

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.

One way to outperform the S&P 500 index benchmark is to invest all you net worth into the S&P 500 and save. Due to your savings, your net worth will always outperform the S&P 500. However, most people have a more diversified net worth than having 100% in the S&P 500 index.

I run my net worth like a multi-strategy fund comprised of real estate, equities, bonds, private equity, and a business. Given stocks have returned roughly 10% a year, including dividends, since 1926, I have a goal of growing my net worth by 10% a year as well.

In 2020, the S&P 500 returned 16% before dividends. Let’s see whether the good times will continue in 2021+.

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. Back in the good old days, when the 10-year bond yield was at 4%, I would shoot for a ~12% investment and annual net worth return.

Today, with the 10-year bond yield under 1%, if you want to follow this benchmark, adjusting your investment target down to just 2.5% – 3% may be appropriate. In other words, when everything is expensive, you may want to lower your risk exposure to protect your gains.

I like this particular financial benchmark because it allows you to adjust with the times. As we've seen from a previous article about a proper withdrawal rate, many people are inflexible with their beliefs or investing decisions. Be like water.

Sector Specific Exchange Traded Funds (ETFs)

If you work in the real estate industry, then perhaps you should consider benchmarking your financial performance to a homebuilder ETF such as ITB, XHB, or PKB.

If you work in pharmaceuticals, then consider ETFs such as PJP, IHE, XPH. Or maybe you work in finance like I did for 13 years. 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.

Given I live in San Francisco, I like to sometimes benchmark my net worth performance to the tech-heavy NASDAQ. However, this is not necessarily fair since I don't have a tech job.

Consumer Price Index

The CPI is produced by the Bureau of Labor statistics and is often maligned as an unrealistic gauge of inflation. For example, the current CPI is roughly 1%. With university tuition still going up ~4% during a pandemic and food prices showing no signs of abating, it's hard to believe the official CPI numbers. The CPI should be considered the base case benchmark for everyone to beat.

The S&P/Case-Schiller Home Price Index

The Case/Schiller 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/Schiller Index should be a relative good barometer for the median American.

S&P/Case-Shiller Home Price Index

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 goals 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.

Alternative Financial Benchmarks

Now that we've gotten some official financial benchmarks out of the way, let's look at some alternative financial benchmarks to follow.

Your Parents Net Worth At A Certain Age

Ask your parents what their net worth was at your current age or at an age where you want to achieve a particular milestone.

You'll have to then adjust their value in today's dollars to make the comparison more true. By a certain age, did your parents own a home? What was their student loan amount at 25? Where were they in their careers at age 30?

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.

Your Friends

Comparing your financial progress to a friend can be tricky. It can lead to jealousy. But it is one of the easiest way to see how you're doing. Further, if you can't be truly happy for your friend's success, perhaps you are not really friends.

One good benchmark is to compare how you're doing compared to the valedictorian or salutatorian of your high school or college class. If you're crushing them, you should feel great! If not, it's OK because they are supposed to be doing well.

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.

The 1/10th Rule For Car Buying

You can use specific buying rules to help motivate you to make more and build more wealth. On such rule is the 1/10th rule, which states that the car you want to buy should be no more than 1/10th your gross annual income.

Hence, if you see a colleague buy a $30,000 car, assume that s/he rationally makes $300,000 a year. Even though there's a high chance your colleague does not make 10X more than the value of the car s/he purchased, you can use the rule as a motivator to earn that amount of income.

Not only do you gain income motivation, you also end up being disciplined financially when it comes time to buy a car. A double win.

The 30/30/3 Rule For Home Buying

One part of my 30/30/3 rule states you should limit your house purchase to 3X your annual gross income. Therefore, if you see someone buy a $600,000 house, then your goal should be to make $200,000. If you see someone buy a $3 million house, you goal should be to make $1 million, if that someone is a peer you respect.

Whether someone follows my 30/30/3 home buying rule is a different story. They may have received helped from the Bank of Mom & Dad or spent 7X their annual gross income on a house. You don't know for sure.

The goal is to trick yourself into following this benchmark to earn more money and build wealth. The 30/30/3 rule allows you to gauge your income and asset accumulation progress.

Free Time

Freedom is the most important reward for having money. Although one of my friends is relatively poor, I consider him one of the richest people I know because he plays tennis three hours every day. 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.

Financial Benchmarks Investors Should Consider To Gauge Performance

It's hard to assign a specific value or scale to the Freedom Factor benchmark. However, you can quantify freedom into the number of hours you get to be free in a 24-hour period.

If you have to work 10 hours a day, you have 14 hours of freedom. 14 hours is likely the average amount of freedom an average person has. For every one more hour of freedom you get, perhaps that's equivalent to a 10% greater net worth.

Once you achieve 24 hours of freedom every day, you may be equivalent to the richest people on Earth. However, even multi-billionaires like Jeff Bezos don't have 24 hours of freedom a day. Therefore, are you truly rich if you don't have 100% control over your time? Something to ponder.

Life Expectancy

Perhaps there is no greater financial benchmark than life expectancy. You can be a billionaire, but if you are unhealthy and die at 50, that's no good. I'm pretty sure most of us would choose to have average wealth and live a healthy life until age 100.

Although we cannot guarantee ourselves a long and healthy life, we can do things to improve our chances. Therefore, we should eat well, exercise regularly, and take care of our mental health. These activities are especially important during a pandemic.

I've found that limiting news and social media consumption helps my mental health. I also try and focus on the positives every day. Let us regularly count our blessings. Please do not waste time! Do not put off the things you truly want to do or see.

When the world opens back up, I'm expecting millions of us to finally get busy living. The amount of travel and spending is going to be enormous!

Historical life expectancy in America
Source: Worldometers

Make Sure You're Heading In The Right Direction

Whatever benchmark you use to gauge your financial performance, make sure it helps you boost your wealth. Although my base case financial benchmark is 3X the risk-free rate, my aspirational benchmark is to have my overall net worth beat the S&P 500's performance each year.

Figuring out where you stand is a timeless pursuit. It's the reason why posts such as The Average Net Worth For The Above Average Person, 401k Amounts By Age, and Target Net Worth Levels By Experience continue to be so popular.

But once you know where you stand, practice living your best life. The financial benchmark of free time is really the one benchmark we should all shoot for.

Track Your Wealth Carefully

Not only should you follow financial benchmarks to ensure your net worth is growing on track, you should also track your wealth carefully.

The best way to track your wealth is through Personal Capital, a free financial app I've been using since 2012. With Personal Capital, you can analyze your investments for excessive fees, mange your cash flow, and skillfully plan for retirement using their free tools.

There is no rewind button in life! Manage your finances right the first time around.

Personal Capital Retirement Planner Free Tool
Personal Capital's Free Retirement Planner

Readers, what are some financial benchmarks you use to gauge your financial performance? What is your favorite financial benchmark to follow in this time period?

About The Author

55 thoughts on “Financial Benchmarks Investors To Gauge Net Worth Performance”

  1. Great article. It’s so easy to see your returns as inferior when you compare them to the wrong benchmark, and I always try to remember that was a choice to reduce risk and allow me to sleep better at night. Rather than pick a specific benchmark, I like to focus on what return I need to achieve given my current portfolio and age to achieve FI at a specific age in the future. That seems to provide the best one to shoot for and helps me avoid taking on unnecessary risk just to try to match something like the S&P or that of a rich friend who has a larger lifestyle.

  2. Great article! I love for financial benchmarking. You can compare yourself to your peers based on age, location, income, etc and you can see details from net worth to detailed spending based on categories. They even have an anonymous social network type feature where you can interact with others in your peer group to ask questions and share info. Takes all the awkwardnes out of discussing with your own social circle. Super cool!

  3. I’m finding it harder to beat the S&P 500 short-term due to my ever growing portfolio that includes a 22% of under-performing international stocks. I would like to think my internationally diversified portfolio plus my incremental savings will accumulate more than a static buy and hold S&P 500 holdings but it’s frustrating to see how the S&P 500 gains outpaces both my international holding gains plus additional savings. We’ll see if regression to the mean happens as time goes on.

    1. I agree. The easiest way to keep up is to have 100% of your net worth in the S&P 500. However, as you get older and wealthier, you tend to want to minimize volatility.

      But at some point, you may get so wealthy that you can take 30% hits without a problem.

  4. Your median wage data is coming from the UK. Median USA wages have grown during that time period.

  5. Ms.Conviviality

    Millionaires, on average, have 7 streams of income. I have 5 currently so working on at least 2 more.

  6. Oddly enough, just last week I asked my dad where he was with his retirement savings at my current age. We never discussed specifics in the past. He actually couldn’t remember. He retired around age 55 from a blue collar job.

    He cashed out his 401k several times to buy fun things or a home.

    He also grew up in an era where a pension was the norm so he never relied on his 401k for retirement.

    I wish I could have had a better answer from him but that’s what it was.

    My mom is no longer alive and she died with literally $300 to her name. I’m starting to see why I have such “money issues”.

    I’ve always used my parents as role models on what not to do.

  7. I’ve always just used the S&P 500 and not really thought much further than that. So I love how your post encourages us to think well beyond that. Industry ETFs are a good idea and I also like your ideas on using non traditional financial benchmarks like our parents or the valedictorian etc. Very creative! Your articles always bring me new perspectives! Thanks Sam!

  8. Jenny @ Frugal Guru Guide

    “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.

    1. 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.

  9. 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?

    1. 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?

  10. thepotatohead

    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)

    1. 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?

  11. 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.

  12. 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.

    1. The HFRI hedge fund index is available for free. That ETF is a poor proxy to it. I actually use HFRI as one of my benchmarks. I figure it represents what diversified active managers can achieve after fees. And it’s nice to beat the benchmark :)

  13. 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!

  14. 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?

  15. 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.

      1. 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.

  16. 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?

    1. 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.

      1. @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.

        1. 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.

      2. 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.

    2. 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.

      1. 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.

        1. 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.

        2. 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…

      2. 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?

        1. Yep, you’ll find a lot of my older articles had a cathartic theme to them. 2009 was the year of crisis and that is when this blog started. It’s been a fun journey dealing with the pain of the financial crisis, to redemption, to retirement, to a new journey that I’m slowly incubating.

          I love property because of what you said. Hard asset that is enjoyable, provides utility, and has potential upside. Here’s a post you may enjoy:

      3. I’ve only bought two cars in my life… first was gifted to me by my parents… didn’t buy my first vehicle until 2009 at the age of 30. A $22K Hyundai. I kept it for 10 years.. and just upgraded to a Honda Clarity in 2019. I really wanted a Tesla Model 3… but government rebate incentives and $6K off MSRP for the Honda Clarity were too tempting. I basically paid $22K again (after all the tax rebates) for my 2nd car at 40. My first Hyundai was above the 1/10th rule for sure.. but this car is under the 1/10th rule based on my wife and my combined income. My main regret is not investing in Tesla the day I bought my Honda.

        My biggest takeaway is…Invest in what you “WANT”… because most people don’t have the financial discipline that Financial Samurai readers have!

    3. In the parking lot where my wife works (government research lab) there are zero luxury brand cars (Audi, BMW, Mercedes etc.). It seems like having a luxury car there would be a faux pas. Where I live where houses are only a little above the median for the city there are quite a lot of Audis. Where I work (university), also some luxury brands. I wonder whether there really is peer pressure at her workplace. We have a 16 year old Ford.

  17. 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.

    1. 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.

      1. 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.

      2. 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.

        1. 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.

  18. 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. :)

    1. 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!

  19. The First Million is the Hardest

    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.

  20. Anton Ivanov

    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…

  21. 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.

  22. 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.

  23. Your Daily Finance

    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.

    1. 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.

      1. 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.

        1. 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.

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