Personal Rate of Return Useless?

[WinniWoman]

My 401K's and personal Investment account's (including IRA's) Personal Rates of Return are incredibly low. One is actually in the negatives. Yet, when you read the info. on the returns on the particular funds I have, they are very good for the most part. Some are ETF's.

Back in 2008, I did sell off at the low, therefore losing a ton of money.

But since then I have reinvested and dollar cost average. I have about a 50/50 stock bond split. Very diversified. I do have some commodities funds and bond ETF's which haven't done well recently. All of these funds were researched and bought based on their 3, 5 and 10 year average, etc. Some of the funds- not all- are on the Kiplinger and Money lists.

I am forced to take Inherited IRA minimum distributions every year and I make sure to take it from the funds that have done really well. I always reinvest that money in my taxable account in stock funds.

I also have a few bond funds that automatically liquidate on a certain target date and I have no control over when they do so. Just so happens there was a loss on 2 of those this past Sept.

I have re-balanced yearly as recommended, but some years I have not. I have, of course, at times changed from one fund to another, but again, rarely.

How much stake do you put into these personal rates of return reported by your investment company?

In my case, is it possible just that the 2008 liquidation killed the return going forward? Coupled with the liquidation of the Inherited IRA distributions yearly? Then on top of that the fact that this past year really hasn't been too good for the stock market?

Oh- and I just thought of one other thing- when I first inherited the money (2012), it transferred in kind to my own investment company from my parents. Because all the funds were load and high fee funds, I liquidated all of them to go into no-load and low fee funds and into ETF's of my choosing.

In my 401k, I did change out a couple of funds and re-balanced a few times in the past- I only have 3 funds- a stock index, a value index and a short term bond- all Vanguard. Yet I have a negative personal rate of return.What the?

 

[Jason245]

My 401K's and personal Investment account's (including IRA's) Personal Rates of Return are incredibly low. One is actually in the negatives. Yet, when you read the info. on the returns on the particular funds I have, they are very good for the most part. Some are ETF's.

Back in 2008, I did sell off at the low, therefore losing a ton of money.

But since then I have reinvested and dollar cost average. I have about a 50/50 stock bond split. Very diversified. I do have some commodities funds and bond ETF's which haven't done well recently. All of these funds were researched and bought based on their 3, 5 and 10 year average, etc. Some of the funds- not all- are on the Kiplinger and Money lists.

I am forced to take Inherited IRA minimum distributions every year and I make sure to take it from the funds that have done really well. I always reinvest that money in my taxable account in stock funds.

I also have a few bond funds that automatically liquidate on a certain target date and I have no control over when they do so. Just so happens there was a loss on 2 of those this past Sept.

I have re-balanced yearly as recommended, but some years I have not. I have, of course, at times changed from one fund to another, but again, rarely.

How much stake do you put into these personal rates of return reported by your investment company?

In my case, is it possible just that the 2008 liquidation killed the return going forward? Coupled with the liquidation of the Inherited IRA distributions yearly? Then on top of that the fact that this past year really hasn't been too good for the stock market?

It sounds like you were burned by letting emotions take control of your investment decisions. I think you might need a fee based financial planner or look into the bogleheads forum for some advise..



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[WinniWoman]

It sounds like you were burned by letting emotions take control of your investment decisions. I think you might need a fee based financial planner or look into the bogleheads forum for some advise..



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Yeah- well definitely in 2008 I was. But after that, I tried to make sure I didn't go there again. What is done is done. But now- going forward.....well-that rate of return keeps staring me in the face every time I log onto my accounts.

My point is- ok- my personal rate of return from inception of my accounts are not good because of the liquidations I assume (?), but it is not telling me how things are going with my accounts in the now.

I have to find a fee based financial planner, I know. But- I need someone who will just look at what I have and give advice, not try to take control of my money and invest it in funds he makes money on. Hard to find around these parts. I might have to search outside my area.

I usually do my own taxes, but in 2012 I did use a CPA and she thought my set up was very good in general. But maybe she was just looking at it from a tax perspective- I don't know. I was just there for her to do my taxes.

I am going to look at the bogleheads forum.

 

[Jason245]

Yeah- well definitely in 2008 I was. But after that, I tried to make sure I didn't go there again. What is done is done. But now- going forward.....well-that rate of return keeps staring me in the face every time I log onto my accounts.

My point is- ok- my personal rate of return from inception of my accounts are not good because of the liquidations I assume (?), but it is not telling me how things are going with my accounts in the now.

I have to find a fee based financial planner, I know. But- I need someone who will just look at what I have and give advice, not try to take control of my money and invest it in funds he makes money on. Hard to find around these parts. I might have to search outside my area.

I usually do my own taxes, but in 2012 I did use a CPA and she thought my set up was very good in general. But maybe she was just looking at it from a tax perspective- I don't know. I was just there for her to do my taxes.

I am going to look at the bogleheads forum.

Fee based certified financial planner don't make comission. . That is why they are fee based.. always ask them upfront to verify no comission.

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[Sugarcubesea]

It sounds like you were burned by letting emotions take control of your investment decisions. I think you might need a fee based financial planner or look into the bogleheads forum for some advise..



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Jason, Thanks for the link to Bogleheads for investment info

 

[WinniWoman]

I joined that Bogleheads forum. It is really big (a bit overwhelming for me), but I think it will be helpful for various issues. So thanks for that link.

I posted my same question on there, but I actually was able to go back onto my investment account page and find more information. So it seems the low rate of return (2.45) is since inception, which would account for the various liquidations, including another one I thought of, which was our son's college money. At least that is what I am assuming.

But- I did find a 3 year return of 6.18 and a 5 year return of 4.53, so I am feeling a little better (I think).

(As for my 401k, well, I can't find any more info for a 3 and 5 year return. Right now it shows as -3.5! But again, I made changes over the ten years I have worked here. Our company changed 401k administrators 3 times since I have been there).

 

[SMHarman]

Ok

1. buying high and selling low will do that to your investment return.

2. Dollar cost average hurts that even more. As the market recovered you kept money in cash and reinvested it as the price increased losing out on return.

3. Without your age and many other factors it is hard to tell what the risk mix is right.

4. Commodities have taken quite a hit in the last few years. Gold for example has barely returned 10% Feb 08> yesterday close.
Oil peaked in 08 and is now trading 1/6th of that value.

5. Costs/fees are not everything.

So when are you retiring?
Is the mix right for that time horizon?
Are you nervous because of recent performance?

As others have said a fee based fa May be a good plan as if they can get average returns over your time horizon they are doing ok. Nobody gets consistently above average returns. Average is great.

 

[Jason245]

Ok


5. Costs/fees are not everything.

While I agree with your statement in principle, in reality, the firms that offer the lowest fee mutual funds generally have the ideal investment products for people.

As has been proven time and again, Actively managed funds DO NOT outperform index funds over the long term (even though the fees are exponentially higher).

Index funds by their nature require little to no judgement from the fund managers, accordingly the fees can and should be very low (all they are doing is tracking an INDEX). For example, if one were to want to invest in an S&P 500 index fund, there are many options that all track the same index, and it usually makes the most sense to pay the lowest fees since the returns are generally comparable (although the lower fee funds tend to have slightly better performance then the higher fee ones because more money stays in the fund).

Alternativly, ETFs are becoming popular options to buy in lieu of funds... but those are other products.

 

[bogey21]

I manage my kid's IRAs since I give them the money to fund them. About 6 months ago I moved them 100% into a low duration bond fund. The yield is 0%+. Why? This is the same thing I did for them in 2007. IMO the chance of the market going up substantially is about 1 in 2. The chance of it going down substantially is about 2 to 1. The funds I took them out of are currently lower than when I pulled the trigger. Only the long term will tell if I am right again or not. As an aside, again IMO decisive action like this is more important if you are already making mandatory withdrawals.

George

 

[SMHarman]

While I agree with your statement in principle, in reality, the firms that offer the lowest fee mutual funds generally have the ideal investment products for people.

As has been proven time and again, Actively managed funds DO NOT outperform index funds over the long term (even though the fees are exponentially higher).

Index funds by their nature require little to no judgement from the fund managers, accordingly the fees can and should be very low (all they are doing is tracking an INDEX). For example, if one were to want to invest in an S&P 500 index fund, there are many options that all track the same index, and it usually makes the most sense to pay the lowest fees since the returns are generally comparable (although the lower fee funds tend to have slightly better performance then the higher fee ones because more money stays in the fund).

Alternativly, ETFs are becoming popular options to buy in lieu of funds... but those are other products.

But your risk appetite and time horizon are more important to tha absolute delta.

If you bought $6,000 in a oil fund in 2008 it doesn't matter if the fee was 0.5% or 2% you still only have roughly $1,000 today.

If you had stayed in the market in 2008, after all you did noy need the money then, it does not matter if your fees were.... You would be up over the 2005-2015 horizon.

The mistake here is not fees, that's gravy, it is going to cash at the bottom of the market when you did not need cash as you are not retired.

 

[cp73]

IMO the chance of the market going up substantially is about 1 in 2. The chance of it going down substantially is about 2 to 1.
George

George,

No one can time the market. Nor is there anyone who has a track record of being able to do this. Regardless of what they tell you. There are lots of studies that have been done on this topic. It doesn't work. Your going with just a gut feeling. That is a bad strategy. Maybe your allocation mix is too strong for your comfort level and that forces you to want out. As others have said, go to the bogleheads forum and read up about market timing and if its really possible.

 

[Jason245]

I manage my kid's IRAs since I give them the money to fund them. About 6 months ago I moved them 100% into a low duration bond fund. The yield is 0%+. Why? This is the same thing I did for them in 2007. IMO the chance of the market going up substantially is about 1 in 2. The chance of it going down substantially is about 2 to 1. The funds I took them out of are currently lower than when I pulled the trigger. Only the long term will tell if I am right again or not. As an aside, again IMO decisive action like this is more important if you are already making mandatory withdrawals.

George

I would get out of the bonds and switch to money market option. I did that over a year ago, and only a few weeks ago, bought back my international index funds at share prices 10-20% less than what I sold them for. US Market valuations are insane, and so that portion of my folio is in Cash.

Bond funds are generally a bad idea (if rates go up, guess what, your fund value goes down as they never hold that stuff till redemption, and unlike the buy and hold option of a BOND, funds bake in those losses)

 

[Jason245]

George,

No one can time the market. Nor is there anyone who has a track record of being able to do this. Regardless of what they tell you. There are lots of studies that have been done on this topic. It doesn't work. Your going with just a gut feeling. That is a bad strategy. Maybe your allocation mix is too strong for your comfort level and that forces you to want out. As others have said, go to the bogleheads forum and read up about market timing and if its really possible.

Market timing is usually not a good idea, and for most people a bogleheads strategy works. That being said, there is currently a lot of market manipulation as a result of government interferance. If that ever gets sorted, there is going to be a market reaction.

Broad based, if you look at the shiller PE, MKT CAP/GDP metrics, there is a disconnect somewhere which has scared me out of the Market(The combined US Mkt Cap is over 120% of our GDP).

When valuations settle down, I plan on going back in (by all math, over the next 10 years, the ROI on US stocks should be between -1% and 1% given current valuations).

 

[am1]

There are much better investments out there then in the stock market.

They can offer hire returns or less variance but they do include more work.

With a high US dollar one can look outside of the United States for some very good deals.

 

[artringwald]

A simple way to invest is to use Scott Burn's Couch Potato Investing.

https://assetbuilder.com/knowledge-center/articles/couch-potato-cookbook

You invest equal amounts in a diversity of low expense ratio, index based funds. Periodically check to see if they're balanced. If one is higher, sell some. If one is lower, buy some. You're always buying low and selling high. You don't have to read the headlines or understand the market. You just have to remember to re-balance. It works best when the market is volatile, as it has been lately.

I've been trying it since I retired 8 years ago and the APY has been 7%.

 

[Jason245]

A simple way to invest is to use Scott Burn's Couch Potato Investing.

https://assetbuilder.com/knowledge-center/articles/couch-potato-cookbook

You invest equal amounts in a diversity of low expense ratio, index based funds. Periodically check to see if they're balanced. If one is higher, sell some. If one is lower, buy some. You're always buying low and selling high. You don't have to read the headlines or understand the market. You just have to remember to re-balance. It works best when the market is volatile, as it has been lately.

I've been trying it since I retired 8 years ago and the APY has been 7%.

Performing well in last 8 years has been very easy. . Look at what your performance would have been from 2002 to 2009 doing same thing

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[WinniWoman]

I would get out of the bonds and switch to money market option. I did that over a year ago, and only a few weeks ago, bought back my international index funds at share prices 10-20% less than what I sold them for. US Market valuations are insane, and so that portion of my folio is in Cash.

Bond funds are generally a bad idea (if rates go up, guess what, your fund value goes down as they never hold that stuff till redemption, and unlike the buy and hold option of a BOND, funds bake in those losses)

Well. now Janet Yellen just announced that rates are going to lowered into the negatives because of the worsening economy. Ugh! If they raise them even slightly the economy will collapse!

 

[VacationForever]

All large brokerage firms have financial advisors who can review your portfolio and give advice without charge. You may want to start there. When I managed my own investments, I lost so much that it was an embarrassment - mid 6 figure, due to the dot com bust. I learned the hard way that I am not good at this and handed over my savings to a wealth manager. I went theough 2 wealth management companies and was happy with the second. It has worked very well. They are commission based and they take care of rebalancing. I am in the red in my employer 401K because wealth manager cannot manage those, and I am terrible at picking funds and stocks. It is stocks, again, that put me in red numbers.

If you want more info on the wealth management companies experience, you can PM me.

 

[WinniWoman]

Ok

1. buying high and selling low will do that to your investment return.

2. Dollar cost average hurts that even more. As the market recovered you kept money in cash and reinvested it as the price increased losing out on return.

3. Without your age and many other factors it is hard to tell what the risk mix is right.

4. Commodities have taken quite a hit in the last few years. Gold for example has barely returned 10% Feb 08> yesterday close.
Oil peaked in 08 and is now trading 1/6th of that value.

5. Costs/fees are not everything.

So when are you retiring?
Is the mix right for that time horizon?
Are you nervous because of recent performance?

As others have said a fee based fa May be a good plan as if they can get average returns over your time horizon they are doing ok. Nobody gets consistently above average returns. Average is great.

My mix is good I think. I do have funds in mostly all categories except a few, like emerging market stocks. I have a few index funds and a few managed funds. Domestic, Global, International, Small, Mid-size, Big, etc.. I have some industry specific funds like healthcare and financials. I do have a bit in bond funds. I feel like there is nothing to invest in anymore. Can't put it all in stocks. I have a lot in CD's and savings. I have I Bonds (stopped buying those right now as they are getting 0 interest) and some savings bonds. I have a currency fund. I own gold and silver- paper and physical. I am 59 and my husband is 62. Can't retire until FRA of 66 and 67.

I am always nervous when it comes to money.

 

[WinniWoman]

All large brokerage firms have financial advisors who can review your portfolio and give advice without charge. You may want to start there. When I managed my own investments, I lost so much that it was an embarrassment - mid 6 figure, due to the dot com bust. I learned the hard way that I am not good at this and handed over my savings to a wealth manager. I went theough 2 wealth management companies and was happy with the second. It has worked very well. They are commission based and they take care of rebalancing. I am in the red in my employer 401K because wealth manager cannot manage those, and I am terrible at picking funds and stocks. It is stocks, again, that put me in red numbers.

If you want more info on the wealth management companies experience, you can PM me.

Thanks. I also think the company I am with has advisors for a one time flat fee and evaluation and I might look into that as well. I do use their retirement outlook tool that evaluates the situation you are in to lets you see how well you are doing. Supposedly doing ok, but those sites have limitations.

I lost money back when the World Trade Center was bombed. I had a lot in technology funds. I decided to take the rest out of the funds and pay off our house. I don't regret doing that. It made a big mistake a whole lot better.

 

[Ironwood]

George,

No one can time the market. Nor is there anyone who has a track record of being able to do this. Regardless of what they tell you. There are lots of studies that have been done on this topic. It doesn't work. Your going with just a gut feeling. That is a bad strategy. Maybe your allocation mix is too strong for your comfort level and that forces you to want out. As others have said, go to the bogleheads forum and read up about market timing and if its really possible.

Well, that's what they tell you all the time, as institutional managers want you to remain invested at all times...that's how they make money. They don't want you getting in and out! You can time the market if you have a basic knowledge of charting, use stops correctly, and are prepared to keep a close eye on your investments. If you can't or won't then don't try. It is not for the faint of heart! But it can be done, with winners outweighing loosers.

 

[bogey21]

No one can time the market.....Regardless of what they tell you....It doesn't work. Your going with just a gut feeling. That is a bad strategy.

I have no quarrel with what you are saying. It is sound advice. Sometimes listening to your gut does work out. Sometimes it doesn't. My getting out of the market in 2007 was a home run. We will have to wait a couple of years to see if my getting out this time will be beneficial or not.

George

 

[bogey21]

Bond funds are generally a bad idea (if rates go up, guess what, your fund value goes down as they never hold that stuff till redemption, and unlike the buy and hold option of a BOND, funds bake in those losses)

Exactly why I went into a low duration fund. Yes, the yield sucks but principle remains intact.

George

 

[geekette]

mpum,
I think your anxiety about your finances is causing you to churn your accounts sufficiently to seriously whack your personal rate of return. I would pay less attention to that arbitrary number than the deployment of assets. You are invested in pretty much everything so step back and draw your pie charts and determine what each holding does for you and going forward it will be easier to decide if you should keep investment A or if investment B is more suitable to your goals for that investment type. Could be that you are overdiversified and complicating things unnecessarily.

Moving in and out as the market changes can put you further behind than ahead, but, everyone's mileage varies. Best I can tell you is to firm it up and then don't touch it for a while and see how each does and redraw those pie charts to see that you are, indeed, on course.

The only other thing I might recommend is to check on 401k "stable value" or the like. If there is any guaranteed return investment, you might deploy some forward contributions to some certainty that can help you sleep well at night. Even 2-4% guaranteed beats current inflation tho not necessarily personal rate of inflation.

You're doing great, imo.

 

[PigsDad]

In my 401k, I did change out a couple of funds and re-balanced a few times in the past- I only have 3 funds- a stock index, a value index and a short term bond- all Vanguard. Yet I have a negative personal rate of return.What the?

Did you check the time period used for the rate of return they are showing you? My 401k is with Fidelity, and by default the time period is the last 12 months. So right now, my personal rate of return looks quite low since this has not been a great year for the stock market.

Just a thought.

Kurt