{"id":785,"date":"2012-07-10T16:03:47","date_gmt":"2012-07-10T16:03:47","guid":{"rendered":"http:\/\/vhfinancialmanagement.com\/?p=785"},"modified":"2012-07-10T16:06:41","modified_gmt":"2012-07-10T16:06:41","slug":"how-to-measure-growth","status":"publish","type":"post","link":"https:\/\/vhfinancialmanagement.com\/2012\/07\/10\/how-to-measure-growth","title":{"rendered":"How to Measure Growth"},"content":{"rendered":"
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What rate of return did your portfolio generate in 2011? As an advisor, I often get asked the question about investment returns.\u00a0 But, as a fee-only advisor, I feel this question is misguided.\u00a0 While investment returns are an important aspect of our overall financial health, they are simply a piece of the puzzle.\u00a0 As a matter of fact, I don\u2019t even know what rate my personal portfolio returned in 2011.<\/p>\n

It probably seems a bit odd to have a financial advisor make this statement. Sound like a plumber with a leaky sink? Actually, it couldn\u2019t be farther from the truth. Ask me how much my net worth grew, and that\u2019s a number I know well.<\/p>\n

Why is understanding net worth growth important?<\/p>\n

Net worth growth is the best measuring stick we have to judge our overall financial health.\u00a0 It encompasses the pieces of our financial world which we can control, as well as our investment growth (or loss). The following areas lead us to financial success (or financial failure): How much we spend, save, and pay in taxes are the pieces we can control and should be viewed, along with investments, when evaluating financial health.<\/p>\n

I have seen people with wonderful investment returns who over spend and don\u2019t save.\u00a0 This poor financial behavior is reflected on the net worth statement.\u00a0 If the market is positive but net worth has declined, then I know something is askew. Negative net worth growth usually<\/span> is the result of one of two scenarios: the market is having a really bad year, or poor financial behavior is evident. \u00a0To read more about my thoughts on Behavior Finance click here<\/a>.<\/p>\n

Money contributed into retirement plans positively impact your NWS(net worth statement). Reducing your tax liability by becoming more tax efficient should improve your financial situation and is often reflected on a NWS. The ability to spend within reason is always a positive step and will trickle down to the NWS.\u00a0 In contrast, poorly managing the above three items will be caught by the well trained eye of a holistic advisor.\u00a0 That\u2019s right, you can\u2019t sneak anything by me.<\/p>\n

This doesn\u2019t mean I am apathetic towards investing, it simply means I am focused on the sum of the parts. \u00a0Knowing your net worth and understanding your net worth statement is a valuable tool to make sure you are on the right track to financial freedom.<\/p>\n

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