Published by Mark Petersen, CPA, CFP®
“What is your number?” is a question one frequently hears in the financial services industry. It may refer to many different things, depending upon the company with whom one is working. At Carson Wealth Management Group, your number refers to your Family Index Number (FIN), which is unique to every family. For example, there is a XX Jones Family Index Number as well as a XX Smith Family Index Number.
Family Index Number, by definition, is the rate of return necessary to accomplish your goals and objectives and not deplete your portfolio assets during your anticipated lifetime. That sounds pretty simple and can be very valuable. It is Carson Wealth’s objective to make the complex simple. Measuring your portfolio return against the S&P 500 Index is interesting because it is so widely reported, but is it important? Here are a few facts to frame the conversation:
- According to Investopedia, the S&P500 has averaged a return of 9.8% annually over the last 90 years.
- On January 18, 2018 the U.S. markets were valued at about $30 trillion according to Barron’s.
- The S&P500 market cap in July 2018 was valued at about $23.9 trillion or roughly 80% of the U.S. market value.
- The 500 stocks in the S&P500 represent about 12.5% of the approximately 4000 actively traded companies on the NYSE and NASDAQ stock exchanges.
At 80% of the value, the S&P500 is a good proxy for the overall financial markets, which means it is also a proxy for the volatility of the markets. A reminder that some approximate value decreases from the market highs in the U.S. financial markets during the last 90 years:
- Great Depression, 1930’s 80%
- Oil Crisis and inflation, 1970’s 40%
- Tech Bubble bursting, 2000’s 40%
- Financial Crisis, 2008 50%
This leads to the question, “Do you need or want the level of volatility associated with ‘the market’?” Because of the up and down moves associated with the stock markets, many people view it as a rollercoaster. Are you a thrill seeker who doesn’t mind the risk to the value of your portfolio, or do you want a calmer ride? These are questions to consider especially when you no longer have a paycheck coming twice a month.
This brings us back to the Family Index Number. Using your personal financial resources and identifying the needs and wants that your resources must provide for during your lifetime, including day to day spending, Carson Wealth prepares your holistic financial plan. Part of that planning process is to calculate your Family Index Number. Your Wealth Advisor may use the Family Index Number to design a personal portfolio allocation to meet your needs while potentially lessening the financial risk and tempering the volatility of your investments to a level with which you are comfortable.
We live in competitive society, which means people want to measure against something to be perceived as a “winner”, however, with competition comes losers, too. Knowing, measuring against and exceeding your Family Index Number, makes you a winner, no matter what return the S&P500 or your neighbor achieves in the markets. The consequences of losing, by holding a more aggressive portfolio allocation than necessary, may be the loss of the lifestyle you want to enjoy during your post working years. Call us today to get started on calculating YOUR Family Index Number!
S&P 500 Index: The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Investors should consider their financial ability to continue to purchase through periods of low price levels.