What's Your Number?
“What’s your number?” No, I’m not trying to pick you up. In the financial world, an advisor may ask you this question regarding a sum of money needed to achieve financial independence (otherwise known as your retirement number)
Figuring out what this number should be is an essential part of the financial planning process. It’s the foundation on which we decide how much we should be saving each year. How we should be investing, what kind of returns we should try to achieve, and for how long.
The Numbers Problem
Placing too much priority on the number has a downside. Investors can get caught in the trap of paying too much attention to the number. Numbers tell us what a stock cost. Investment returns and/or performance is measured in numbers. The number that represents our account value can change daily. Numbers can become so overwhelming that we forget what they even mean.
Numbers have an Ego
What starts as a true desire to provide for our family and retirement can often transform into a desire to feed our ego. We’re might worry more about what return someone else got and how we compare.
Often, investors compare their return to the performance of an arbitrary index. An investor is comparing the return of their portfolio to something that has little to do with the goals and risk tolerances of the investor. Unfortunately, this exercise is sometimes done daily.
Our moods and attitudes can be affected by the “Ego of Numbers”. We can go from being kind, loving, and generous one day to angry and bitter the next. If we don’t consistently remind ourselves as to what these numbers represent then we can easily get caught in this trap.
What does Your Number Represent?
What do you plan to do once that number becomes reality? We may spend our entire lives trying to reach that number but what for?
This number represents the freedom and ability to do what you value most. I’ve heard it said that retirement is going from what you have to do to what you want to do. What is that? Put it down on paper. Review it frequently. When we invest, we do it so that we’ll someday be able to do the things that matter most not our number on a given day.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Securities offered through LPL Financial, Member FINRA/SIPC