When it comes to managing our retirement nest eggs and investment accounts one thing that many people don’t realize is the importance of Measurement.
Our financial resource Carl Carlson, CEO of Carlson Financial, helped us understand why Measurement is so important.
Carlson said to first think about, how much difference would an additional 1% return make for your investments over a 30 year period of time?
One example is, if you planned on having $1,000,000 30 years now and you could figure out how to earn 1% more on your investments each year.
For example 8% instead of 7%. Instead of having $1,000,000 you would have $1,330,000 which is 33% more money. That is the basic math. But for most people the money doesn’t just sit there and earn 8% each year, there are a lot of other dynamics happening daily, monthly, yearly, etc., Carlson said.
Things like the ups and downs in the market, the ups and downs in how much you might be spending and/or saving, inflation, etc. Because of all these other factors, Carlson has seen a 1% difference make a 100%, 200%, and greater difference over a three year period.
Measurement comes into play to get that 1% difference. You build a plan to achieve 1% more and then you have to see if you are doing it on at least an annual basis, Carlson would recommend that it would be best to measure on a monthly basis.
Then you see how you are doing according to your plan to achieve a 1% greater return and if you are off, you adjust and make changes. You get proactive and you can’t do that if you don’t know where you planned to be and where you are, Carlson said.
Once that plan is built, Measurement is a the key to achieving that extra 1% per year.
That small difference could make not only a 33% difference but possibly a 100% or more difference. Having $2,000,000 instead of $1,000,000 in 30 years.
