People who do well in financial markets have a knack for increasing rather than lowering the bar, as if they perform an inverse limbo dance. Increasing the bar in this context means setting higher and higher investment objectives, choosing higher standards or benchmarks to compare rates of return with, or designing more intelligent benchmarks (i.e. formula that make more money over time). In this article we show how this is feasible, how you can achieve higher and higher returns from investing. After all, investing is a skill that can be learned by anyone!

Let’s start with the basics: most investment managers attempt to produce the same return as the S&P500. More than 80% of investment managers fail to do so because of the management fees, their portfolio turnover, and in some cases, sheer incompetence. If all what you are interested in is achieving a rate of return equivalent to the S&P500, do not invest with them; your better bet is to place your money in a S&P500 index fund or ETF.

Some investment managers aim to outperform the S&P500 by a small percent each year, meaning if the average return of the S&P500 is about 9% per year, they try to achieve 12% to 14% per year. My survey of the best investment managers that I will discuss in my next installment, shows that quite a few manage to achieve this.

Few investment managers shoot for rates of return that are multiples of the S&P500. By this we mean that if the S&P500 is producing say 5% (like in 2005), their goal is to achieve 15% or higher. My survey of the best investment managers shows, there are less than two dozen managers among the Morningstar 500 list of mutual fund managers, that achieve such goals over time.

Setting performance goals solely on the basis of the S&P500 is of course a narrow view of the financial markets. There are periods when the US market is outperforming the rest of the world markets; but there are also significant periods when the reverse is the case. For example, while the S&P500 too date is up 5% --4/30/2006-- the world stock markets are up 15% and the emerging markets are up 20% (at least as measured by two Vanguard index funds, namely VGTSX for global stock index fund and VEIEX for emerging markets stock index fund).

So the question can be raised : what is an appropriate standard or benchmark to compare your portfolio with? Some women I have encountered steer towards the easier to achieve benchmarks ( e.g. S&P500), others, more ambitions women prefer nothing but the best. Somehow women who are more ambitions seem to have a knack for finding men that are equally or even more ambitious than they are (or at least that is what they let them believe...).

The choice of an appropriate benchmark is a very personal choice. My personal experience has been that as one achieves the easier goals, it becomes more reasonable and challenging to think in terms of higher goals.

How to actually acomplish these goals? Start by allocating the bulk or at least 2/3’s of your portfolio to an S&P500 index fund or equivalent ETF; then use the rest to invest in individual stocks so as to learn about the stock markets. Maybe initially you will not be successful (achieving success takes time as you already learned elsewhere…), but given some time you get better and better at picking stocks that produce higher returns. If you follow the Ten Rules for Investment Success strictly (see related links) you may be able to achieve this in shorter time.

The higher returns you achieve on your handpicked stocks will augment the overall return of your portfolio. As you grow more confident in your ability to pick good stocks, you can reduce the amount invested in the index or ETF and start managing more of your money in your own way.

Before long you may consider outperforming the S&P500, "just average". You increase the bar and look for returns that match the global market rates of return. Once you achieve this you may become interested in comparing your returns to those of the best investment managers (my next installment).

Imagine investing as a horse race where shall we say "your horse" is running against the best of horses in the investment field. Imagine you winning, showing up among the top best investment horses of the year... What a delight that would be! Whether conceived as a horse race or an inverse limbo dance, achieving better and better investment results will remain a constant challenge for anyone of us.