Working Wealthy – The Assassin

Rich metaphors can add context and help bring to life the intended meaning of a given phrase, thought or concept.

For instance, the phrase “comparison is the assassin of joy” is a colorful way of saying that the more we focus on comparing ourselves and our circumstances to others, the less satisfaction we’ll have in life.

Far too often, we allow our enjoyment to be erased by a single data point or statistic that compares unfavorably to our experience. The same thinking applies when comparing one’s spending, saving or lifestyle goals to those of peers and friends. It’s almost always a losing proposition, as the grass will often seem greener on the other side. How’s that for using one metaphor to support another?

Let’s consider portfolio returns and interest rates, and how we compare those to all types of different data points.

Portfolio returns

Safe to say, 2023 was a wild year for portfolio returns. While markets ended the year positive, the year did not feel great for most. In fact, around Halloween, many of us thought we would end up with a negative year.

But lo and behold, the market cut a loss like no other and, in general, many investors achieved above-average equity market returns by year-end in 2023.

Lurking just around the corner, though, is the sniper of happiness setting their sights on you as you make your comparisons.

Let’s say your diversified equity portfolio generated a strong return in the past year – even exceeding historical averages and topping your expectations – but you noticed a certain sector performed even better. Should you be satisfied with your return, or will you be envious of the single market segment that outperformed your portfolio? Try taking a step back and look objectively at the numbers.

Not only did you fare better than anticipated, but your portfolio benefited from diversification that typically helps smooth out returns over time (i.e., reduces overall portfolio volatility). Sure, you could’ve invested all your money in that one great-performing sector and generated higher returns, but you’d be taking on a lot more risk focusing only on a narrow part of the market. If that particular sector had a bad year, you’d likely be singing a different tune.

Comparing the results to your actual goal, rather than to some external data – whether they were higher or lower than average historical returns – provides you with a realistic perspective of the market and should help you stay the course.

Interest rates

If you managed to sidestep the assassin of joy in equity markets, hopefully you also did the same with interest rates.

As enjoyable as it is for American savers to finally see better interest accumulate on their fixed income investments relative to the past couple of decades, it’s equally discouraging to be a borrower today.

Just ask anyone looking to buy a home by borrowing money and holding a mortgage.

For some, lives have actually been put on hold as a result of higher interest rates and an increased cost to borrow. Doubly frustrating is that a mere 18 months ago, one could borrow money for next to nothing.

It’s a matter of opinion, of course, but a smart financial household that purchases a home with a mortgage today, even at current rates, is still likely in better financial shape than the buyer “waiting” for interest rates to drop before purchasing their next home.

Of course, everyone’s situation is different, but the borrower who buys within their means today will probably be that much further ahead when and if interest rates decline in the future.

Some homebuyers are having their happiness delayed or even erased by comparing their situation to what life looked like 18 months ago. Meanwhile, the borrower who proceeds and purchases a home at current rates could actually end up gaining confidence that their long-term financial objectives are becoming more achievable. Don’t allow unnecessary comparisons to be the assassin of your own joy.

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