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Chapter 2. Saving for Retirement > Relative Versus Absolute Comparison

Relative Versus Absolute Comparison

During the course of understanding products and services, you may need to look at their relationship to one another. This is called a relative comparison. Other times, you need only understand how the product or service performs on its own. This is called an absolute analysis.

Let's say three people named Joe, Nancy, and Bill set a goal to retire in 10 years with $1 million in assets. In 10 years, Joe has $900,000, Nancy has $1.1 million, and Bill has $1.3 million. They are all close on a relative basis, but on an absolute basis, Joe can't retire. Sometimes you can make the mistake of looking at yourself relative to others when you should be looking at things absolutely. This doesn't mean you shouldn't look at things relatively as well; you should. You just need to be careful at the underlying issue and apply the proper perspective.


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