Will I Ever Retire??

How did your portfolio do in 2010? And more importantly, what progress did you make toward your long-term financial goals? While investment performance is important, long-term financial success depends on a lot more than what "the market" does from year to year. Below, we'll walk through key steps to help you get a handle on just how you're doing vis-à-vis the market and your financial goals.

Step 1:How Am I Doing?  First, assess the performance of your portfolio as a whole, including all your taxable and tax-deferred accounts. Compare your portfolio's actual performance in 2010 (allowing for any portfolio deposits or withdrawals during the year) to a benchmark return of appropriate market indexes weighted to match your target asset allocation. You're not compairing yourself to the "market", but really a "blended market" which would include both stocks / bonds.  For example, say you're a moderately conservative investor and your target asset allocation is 60% stocks, 40% bonds might be your "blended market."

This is also a good time to rebalance your asset allocation back to your long-term target if you didn't get around to it at year end. With the tax-law changes we've seen over the past few years, you may be able to give yourself an additional edge by being tax-smart about how you implement your asset allocation between taxable vs. tax-advantaged accounts.

Again, "am I moving towards my goal?" is much more appropriate than – "am I beating the market?" Wouldn't rather reach your goal with the least amount of risk as possible? 

Step 2: Did I grow my Net Worth?:  Now let's take a look at the bigger—and more important—picture by updating your personal net worth statement. This is similar to what a business does with its balance sheet at the end of the year. Start calculating your personal net worth by totaling up all your assets (what you own, including your taxable and tax-advantaged investment accounts, your home, other property, equity in your business, etc.) and all your liabilities (what you owe). Then complete the picture with a statement of personal cash flows—all sources of annual income minus expenses.

If you did all this for 2009, you can compare how your finances performed since last year. Did your bottom-line net worth increase in 2010? How did that happen? With financial statements in hand, you can see what portion came from the return on your portfolio vs. other factors, such as changes in the value of your home or other real estate, paying off debt, and so on.

This is also an opportunity to see if you stayed on track with your savings goals in 2010. Did you max out your 401(k) or other employer retirement plan? Did you still have positive overall cash flow after all your essential expenses, including taxes? If so, how much of that money did you spend instead of save?

Remember, the amount you save is critical to achieving your long-term goals and growing your personal net worth over time. That's why it's smart to budget in your savings target as a line item / Goal on your cash-flow statement.

Step 3: Make or update your plan:  Measuring progress toward your goals is difficult, if not impossible, when you don't have a plan. Most people plan a vacation, but fail to plan for retirement (a true statistic). Putting one in place involves assessing your current situation, identifying your goals—retirement, college and so on—then formulating a savings and investment plan to help you reach them, as well as a distribution plan to fulfill your goals. Of course, no matter how good your plan is, it won't be of much help unless you take action.

A sound plan, properly implemented and monitored along the way, can help you achieve the ultimate goal—peace of mind—as you find the right balance between working toward your future goals, including a secure retirement, and enjoying the here and now.

Remember, Planning is a Process: Remember, measuring progress toward your goals involves much more than simply focusing on the performance of your investments. It's a comprehensive look at your spending and saving habits, debt management, tax planning, gifting and more—all within the context of the economic, financial and market environment. Remember, too, planning is not a one-time event, but an ongoing, lifelong discipline. If you'd like some help reviewing your progress, we're happy to help. Click HERE for your FREE Roadmap to see if you're heading in the right direction.