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    Sensible ways to measure financial goals

    A Denver financial adviser warns against taking on so much debt that it becomes difficult to save enough for retirement and college.
    A Denver financial adviser warns against taking on so much debt that it becomes difficult to save enough for retirement and college.

    Most of us want goals to shoot for, but all too often we pick the wrong ones.

    This month, Adam Nash, the chief executive of Wealthfront, explained the strange way this tends to happen at work. He recently told my colleague Adam Bryant that if workplace leaders don’t identify specific metrics to focus on, smart people will just make up their own.

    And because these employees are intelligent and persuasive, they’ll quickly convince themselves that their objective is the most sensible one.


    Wealthfront helps people invest their money in a more rational fashion than they might if they were left to their own devices. So, I couldn’t help but wonder about a corollary to Nash’s point: Are there metrics that we cling to in our financial lives that end up being wildly counterproductive?

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    And if so, what should we be replacing them with?

    With the help of a number of people who diagnose other people’s financial delusions for a living and help provide solutions, I picked six metrics to share.

    IQ — Just because you can solve doctoral-level math problems in the realm of data science does not mean you can also pick stocks that will outperform the rest of the market. But many programmers with high IQs try anyway. They do it so often, in fact, that Nash has developed a presentation that he delivers in front of groups of them to try to talk them out of it.

    The replacement metric here might be your pulse. If you read a book about investing and get excited, it’s a bad indicator.


    “Good investing is exceptionally boring,” Nash said.

    Return entitlement — This is the investment return that people expect to get on their entire portfolio just because somebody said they got it on part of their portfolio over a brief period. Except that the entitled never quite see it that way.

    Manisha Thakor, the founder of MoneyZen Wealth Management in Santa Fe, said there is a pattern she sees often. Someone has heard about an accountant who got a 28 percent return on a client’s investment. But it’s never clear, upon further questioning, whether it’s all of the investments or over what period of time. Or someone sees an article in the newspaper about the highest-performing stock or market sector of the year.

    Whatever it is, expectations get set: People want that return all the time, forever, on everything.

    “The most important part of it is how we pick up on a single data point and extrapolate it into an entire portfolio,” Thakor said. “And it’s happening with really smart people.”


    Thakor suggests tamping down natural competitive instincts and replacing the outsize expectations with a realistic assessment of how much risk you can really take with your savings. That is what ought to dictate the contents of a portfolio, not how someone else did with their Twitter stock over a couple of weeks after the initial public offering.

    The next cubicle — As chief executive of NerdWallet, a financial advice and tools site, Tim Chen often finds himself in conversations with employees about salary and title. And he has come to believe that people need to spend less time tracking relative career performance.

    So what does that mean?

    He recently read “The Hard Thing About Hard Things,” by Ben Horowitz, an entrepreneur and venture capitalist. Chen’s conclusion was that too many people based their happiness on whether they were being compensated in a similar way to a worse performer at a similar level at their company (or someone one level up who is not as talented).

    He suggested looking at absolute performance instead, including a frank assessment of whether you truly could command more money elsewhere. A related issue, for him, is the overall quality level of the talent pool in your own organization. If it’s way above average, then you’re probably learning a lot and should think hard about whether leaving to make 10 percent more at a mediocre shop is a move that will make you happier.

    Pretax dollars — Carrie Schwab-Pomerantz, a Charles Schwab senior vice president and author of “The Charles Schwab Guide to Finances After Fifty,” suggested rethinking your Social Security statement.

    There are two things wrong with it. First, the benefit the government promises is a pretax number. People tend to forget that they’ll be paying income taxes on it once they collect. Second, Medicare costs will also take a chunk of that money.

    Monthly debt — It’s easy to lull ourselves into complacency as long as we’re making our various loan payments on time. But Charles Farrell, a financial adviser in Denver and author of “Your Money Ratios,” thinks that people should do a bit of math before patting themselves on the back.

    Add up your total debt, then divide it by your total income. The result should not be a number higher than about 2.25. So if you have $100,000 in income, servicing any more than $225,000 in debt could make it hard for you to save enough for goals like retirement and college tuition. That could mean working longer or borrowing even more.

    Debt is something we have a lot of control over, Farrell noted. But we also rationalize taking it on because it can help us get to bigger goals faster.

    Neutered numbers In her work with widows and others who are making big financial decisions on their own for the first time, Karen Altfest often finds that metrics of any sort are not wholly adequate. That’s because they can’t address the emotional side of money — feelings of fear or regret or inadequacy or unworthiness.

    When strong feelings keep people from trusting the numbers, she said, one thing that can help is an ongoing discussion with a trusted, calming person. Altfest is a financial planner, so this is in her interest, but she was quick to note that a sibling, neighbor, or friend can fill that role. She also urges people providing that compassionate ear not to rush. “You don’t have to say right away where you’ll be in 20 years,” she said.

    She recently sat down with a widowed client who wasn’t seeing her granddaughters as much as she wanted because she couldn’t bring herself to spring for the taxi fare. Altfest worked it out with her — a $15 cab ride over the course of a number of visits. Eventually, the client agreed that it was affordable.

    The first steps may be tiny ones. “But you don’t want to do anything more than they’re ready for,” Altfest said. “Otherwise, they’re never going to believe you.”