Why You Shouldn’t Compare Your Portfolio’s Returns to Your Friends’


It’s easy to get caught up in the comparison game—whether it’s job status, home size, Instagram likes or financial success. Especially when it comes to money, not feeling like we measure up can feel personal. But there are a few major reasons why it’s a particularly bad idea to compare our investment returns to the Joneses’.

1. You may have different goals.

If you’re investing for a home down payment or dream vacation, your portfolio will probably look a lot different than if you’re investing for a long-term goal like retirement.

When you don’t need your money for many years, or even decades, you may be able to assume more risk, since you’ll have time to hang on through inevitable market fluctuations. With shorter timelines, however, you may choose a more conservative portfolio, so you aren’t stuck needing your money when stock prices are down.

So unless you and your friend are investing with the same goal and end date in mind, it can be tricky to compare returns. And even if you are, it still may not be an exact match because…

2. You may be willing to accept different risk levels.

Your goal isn’t the only thing that affects how aggressive your portfolio should be; the way you personally feel about risk also plays an important role.

If you’re willing to risk more of your initial investment for the chance of higher returns, you may opt to invest more heavily in stocks, which historically have had higher yields over the long term than more conservative investments, like bonds. In the last decade, an ETF that tracks the S&P 500 index has seen a 180-percent increase, while a fund that tracks the total U.S. investment-grade bond market has seen a 4-percent increase.

Related: Everything You Need to Know to Sound Smart About ETFs

In the shorter term, though, stock prices may fluctuate to match or underperform bond funds. In fact, during certain periods, such as from 2000 through 2002, bonds actually outperformed stocks.

If the prospect of seeing your investments lose value keeps you up at night, keep that in mind as you construct your portfolio. Staying more conservative may mean you need to contribute more of your own money to hit your goal, rather than gaining value as the market trends upward, but the peace of mind may be worth it.

Related: This Exercise Can Help Reveal What Your Risk Tolerance Really Is

3. You may have started investing at different times.

Even if you share the same goals, timeline and risk appetite, your portfolios’ performances may not align with someone else’s. Depending on when you began investing, you may have purchased shares of the same funds at different prices. That means your friend who bought on a day when prices were lower may see higher returns than you.

But the point isn’t to try and time the market for short-term gains—that’s a risky game and one most of us will lose. (After all, no one can predict with certainty what the market will do tomorrow.) It’s better to aim to spend more time in the market to allow your money to grow as long as possible, which is the best way to achieve good results over time.

Related: Why Isn’t My Portfolio Performing the Same as the Market?