Don't get Caught Up in Relative Performance Game

Relative performance is a smart investing way to measure the investment performance of an investment or an investment manager by comparing their investment performance returns against their peers or benchmarks such as the S&P 500 index.

However, in smart investing, it is much more important to measure how well your investment program is doing in relation to your personal investment goals. Your investment results may look great against stock market benchmarks, but still fall short of the asset growth you have targeted for your family. If you rely too much on relative performance measures, you may be lagging your investment goals without realizing it. But that is not the only downside to the relative performance game.

For a conservative investor, relative performance may not be what you should look at at all. For example, an investment can outperform its benchmark by 10% and still making negative returns overall. If that is the case, you are not smart investing since you are violating rule number one in investments which is not to lose your principal investment dollars. Also, most investments are measured against the benchmark in the same category not against benchmarks of different categories.

While relative performance is a good indicator of the performance of your investments, smart investing means you should look at other factors that also affect your investment goals. Sometimes, it is best to go for absolute investment returns if it means not losing your principal.

click here to read about how to stay on top of your investments the right way.