To measure progress, the investor should use “separate performance benchmarks for each bucket. Return comparisons, risk measures and benchmarks will be different for each of the three buckets.”
And investors should measure their portfolio’s progress “under a variety of market scenarios,’’ Chhabra says, including could the investor sleep at night if his market portfolio declined by 50 percent during market stress? Does the investor have sufficient liquidity and adequate safety in the portfolio to carry him through? How would the investor feel about periodic moderate underperformance or substantial outperformance? All good questions for the investor seeking self-awareness.
Chhabra argues that for the best return, most assets should be held in the market portfolio, and he offers advice on constructing that portfolio. “At the most basic level, what you need to decide is how much exposure you would like to take to the equity market and then put the rest in bonds and cash. “Investing in the market is about tapping into drivers of return and managing risk,’’ he says.
Mastering investing, he says, has another dividend: “It’s not the money left when you die but how you made it, what it provided, and the legacy it has secured that truly matter.’’
“The Aspirational Investor. Taming the Markets to Achieve Your Life’s Goals’’ by Ashvin B. Chhabra. Harper Business. 223 pages. $29.99.
Eleanor O’Sullivan is an award-winning freelance journalist who has written for USA Today and Gannett newspapers. She can be reached at [email protected].