Investment performance 2014

[spotty_dog]

I just got around to calculating my rate of return for 2014. The asset allocation I have been aiming for is about 70% equity/30% fixed income. (This is a bit conservative for our age, a bit aggressive for our desired retirement time frame.) I have these categories further broken down into sub-categories, but this general split should be what drives the majority of our returns. As a benchmark, I looked at other 70/30 investments. For example, if you take a mathematical split between Fidelity's Total Market index fund and their Total Bond Market index fund, you would expect a 10.49% return in 2014. But Fidelity's own "Asset Manager" fund-of-funds with that split actually only returned 5.61%, and their "Freedom 2025" target retirement date fund whose sub-categories match our preferences, returned 5.63%.

So, I was pretty pleased to run Excel's XIRR function and determine we made a 7.83% return across all our retirement accounts in 2014. Worse than ideal but better than the professionals? I think we'll stick with the same asset allocation this year, and re-evaluate around my birthday this summer.

Any other numbers nerds want to run theirs and share their thoughts about how they compared to benchmarks and how they'd hope to improve? White Coat Investor's excellent tutorial on using this Excel function is here: http://whitecoatinvestor.com/how-to-...xirr-function/

[poky]

I'm interested, but mostly as a benchmark, because we've just had our money in retirement year funds of funds until now, but after we move and I go to part time, we'll be re-arranging everything with the help of our new advisor - we've got a shorter timeframe till retirement, so we need to save a LOT, and we're aiming for also about 70/30 or 75/25 or so (which is actually about what our retirement-year accounts are at right now).

Remind me late in the summer, and I'll definitely jump on board.

[spotty_dog]

I think DH would like to be scaling back in about 10-13 years and moving toward full retirement within 18 years. So our timeframe is kind of short too. Do let me know if you find anything interesting in the calculation! I feel like I'm getting closer to my benchmarks as time goes on, which is nice. And I just collected my data for four consecutive years...9.6%, which is above my long-term estimate of 6%. Awesome.

[PrincessFiona]

I haven't the foggiest idea of what you're talking about. 😱. I know that we max out our contributions each year and that they are matched. I know how much we have in our retirement account. That ... Is it! Our goal is to have enough to live off the interest of our funds. We should be there when dh is 62 or so but both of us would like to work longer. I want to work simply because I really haven't yet.


Sent from my iPhone using Tapatalk

[spotty_dog]

I guess the question is, based on what assumptions are you convinced that you will have a retirement nest egg sufficient to meet your needs in 12 years? How fast is your money growing right now, is it fast enough, and are you bleeding off too much of your growth to fees and expenses?

The S&P 500 grew by 13.5% in 2014. But being all in stocks would be too much risk for anyone who actually needed to count on that money ever. So most of us will expect less growth, depending on our personal ability, willingness, and need to take on risk. How much less? You have to create some sort of a benchmark to represent what your expected growth would be in a perfect world without fees and expenses and poor timing (putting your monthly contribution in to the market at a high point, for example, so it doesn't actually experience growth.) Then, you can calculate what your actual return was and whether you're capturing enough of the market growth to meet your personal financial goals. Unfortunately, calculating your return isn't as easy as subtracting your starting balance and contributions off of your final balance and getting a percent. Since your contributions, dividends, and interest trickled in all year, your actual "internal rate of return" requires a complicated formula -- hence the excel function. All you need is a starting balance, ending balance, and the dates and amounts of contributions.

Now, given the information about rate of return, what good is it? Well, I am honestly pessimistic about the long-term growth of the stock market. I think it's overvalued and we're going to stagnate for a while, especially with what's going on in oil. So when I calculate how much we need to contribute in order to meet our retirement needs, I assume about a 6-7% annual growth. (Some experts think that in reality the next 20-30 years might see as little as 4-5% long-term; others are still riding high on the optimistic 12% annual growth as estimated from historic performance.) In the four years I've been doing this calculation I've had returns ranging from .5% to 17%. But so far, my total growth is in line with my expectations, and my risk exposure isn't giving me heart palpitations, so I feel like we're on the right track.

If your money is being handed off to a professional and you're not peeking in that "black box" that's fine. But you might want to ask that professional these same questions. How did my investments perform this year, and how did that performance compare to benchmarks and expectations? Am I still on track to meet my goals? How confident are we that I won't outlive my money? Major changes to your asset allocation shouldn't be made as a knee-jerk response to one year's performance. But comparing to benchmarks can help you to evaluate whether there are areas to tighten up your investment policy. If, say, Vanguard's Target Retirement account is consistently outperforming your actively managed portfolio, despite that you're paying some huge percent of the assets to your adviser each year, then maybe you have some hard decisions to make about how to handle your money, you know?