If a portfolio rises by 5% in a year while the cost of living rises by 8%, has its owner gained or lost?
Fast Track (30 seconds)
- A result means nothing until it is set against a goal: the same return can be a triumph or a failure.
- Seven goals form a ladder, from “do not lose my money” to “earn the most for the least pain”. Each has its own test.
- Every test needs a yardstick: inflation, a safe government bond, or a tracker index that simply copies the market.
- Diversification is the simplest way to stop one mistake wrecking the plan.
Introduction
A portfolio can rise in value and its owner can still be poorer. That points to a neglected fact: a result means nothing until it is set against a goal.
This article sets out seven such goals, arranged as a ladder, and shows the yardsticks that make each one testable, from inflation to an index that copies the market.
