It's tempting to try and “win” with your investment portfolio, but the best course of action is to just methodically build wealth.
I'm having a hard time right now. I joined the Grow Your Dough Throwdown, a challenge among friendly bloggers. My intention when I joined the challenge was to not, in fact, win, but to use this as a spur to improve my dividend portfolio efforts.
During the first couple months of challenge, it was easy to stick by my resolution because I was among the top contenders. Last month and this month, though, I find I'm slipping in the rankings. My investment portfolio is still up, and I'm reasonably happy with my overall performance, but, at the same time, I'm kind of bummed that I've gone from one of the top performers to just being, well, mediocre.
I can't really complain too much. After all, I'm still up more than $115 on the year (although this is a bit of a comedown from when my portfolio value was up more than $135). And besides, the point of this exercise is not for me to win, but rather for me to develop a better investment portfolio.
Keeping that in mind is tough, though, when I spend too much time comparing myself to others. Plus, it's not helping that the S&P 500 is creeping up on me:
There was a time when my investment portfolio was handily beating the S&P 500. Now, of course, that is no longer the case. Instead, the S&P is catching up — and may even surpass me. Why, it's almost as though I'm not an investing genius after all!
What this bring to my mind, however, is that I shouldn't abandon my plan; it's working reasonably well. I need to fight the urge to “win” and make sure that any changes to my investment portfolio are made for the right reasons.
Your Investment Portfolio Isn't a Contest
Many of us like to “win” at life. We want our portfolios to “beat the index” and we want to be perceived as intelligent when it comes to investing. And, of course, we think that the person with the highest portfolio value right now is the “winner.”
However, that's not how you should approach investing. The truth is that investing should be about developing your own style, and figuring out what is the best move for you, based on your own financial goals and risk tolerance. The reality is this: As long as you are growing your wealth, and as long as you are beating inflation while you're at it, I think you're “winning.”
The key is not to compare yourself to others, or even to an index. The key is to make sure that you are on track to meet your goals. The Grow Your Dough challenge has been a great way for me to move forward with my efforts to build an income portfolio. So far, it's not hugely impressive; I've only seen about $30.50 in dividends this year. But that's still $30.50 I didn't have before, and it's a nice lunch with dessert, or a manicure. (Although, in reality, I'm just reinvesting it all as much as I can.)
Getting caught up in whether or not you are “winning,” whether you pit yourself against someone else, or whether you measure yourself against an index's performance, is a recipe for potential disaster. That is the point at which you run the risk of over-trading your account, paying too much in fees and possibly trying so hard to chase gains that you end up adding too much risk to your investment portfolio. You might also start adding extra investments in an effort to beef your portfolio up, making things complex, when your portfolio is probably better off as something simpler.
Checking my account every month to see where I stand tempts me into a more competitive mindset. But if I want to ultimately reach my goals, and need to worry less about “winning” against my peers and keep the focus more on my overall plan.