Skip the Quarterly Performance Report and Track This Metric Instead

In my humble opinion, the financial services industry has long focused the attention of people like ourselves – people primarily concerned with living well now and in the future – on the wrong metrics. As an example, I present the quarterly performance report...

Here’s how your investments did over the past three months!

Is a three-month snapshot in the context of a lifetime of investing really helpful? And does it accomplish anything outside of making you nervous and anxious? It can even make you feel like you need to be doing “something” when doing nothing is often the best answer.

One thing this quarterly check-in does accomplish though is something that might currently be missing from your financial life.

It provides something tangible, something you can track that shows your progress.

It might not be the right thing, but something is needed if we’re going to defer instant gratification in service of our future selves over an extended period of time.

So if quarterly performance isn’t the answer and you haven’t (yet!) gone through the financial planning process, what metric could you use? What metric can provide you with a tangible measure that shows the progress your responsible financial decisions are making?

I think the best metric to track is your net worth.

To figure out your current net worth, simply total up all of your assets – your cash, investments, retirement accounts, college savings, home value, etc. – and then subtract all of your liabilities – your mortgage, car loans, credit card debt, student loans, etc. You’ve now calculated your current net worth and established your starting point.

Tracking your net worth over time will allow you to see if your assets are growing, if your liabilities are declining, and if your actions are making a tangible difference. Try to perform this simple calculation on an annual basis as an easy way to see if you’re making progress.

It’s also important to acknowledge net worth is not a perfect metric. For example, your investments likely represent a good chunk of your assets and they will fluctuate to both the positive and negative over time, impacting your net worth along the way.

You can do everything right on your end like saving and investing responsibly while being mindful of your expenses and still see your net worth drop when the markets decline. In this situation, it helps to remember that you’re likely accumulating more shares of the same investments when the markets decline than you were buying before when the markets were higher. You’re also executing on the “buy low” part of the ‘buy low, sell high’ approach without even realizing it. And assuming you’re rebalancing your investments or setting them to rebalance automatically, you’ve got the “sell high” part taken care of as well.

So if you don’t know your current net worth or haven’t tracked yours in awhile, try giving it a shot. It will help you gain a sense of where you’re at right now and provide a system for tracking your financial progress in a tangible way on this journey we all call life.

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