How do you keep yourself honest about your returns?

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How do you keep yourself honest about your returns?

Postby McCharley » Sun Jan 27, 2013 9:39 pm

I have a portfolio of stocks and would like to compare my returns to the SP500.

I can XIRR my cash flows (I put money in and took money out over the year), but how do I add SP500 comparison data?

I tried a mirror portfolio where all cash flows were in and out of GSPC, but I think this misses dividends. (?)

I am trying to keep myself honest about single stock investing; this is not a large part of my portfolio. I am a Bolgehead, after all!

Tax loss harvesting makes my portfolio look like a champ right about now! :sharebeer But I know it ain't true. :?

I know many of you invest in individual stocks as well -- how do you keep yourselves honest about your performance? :greedy
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Re: How do you keep yourself honest about your returns?

Postby bottlecap » Sun Jan 27, 2013 9:47 pm

I don't. I don't keep track of my coin flips, either. No need to be honest, I just tell people I'm really good at winning coin flips!

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Re: How do you keep yourself honest about your returns?

Postby livesoft » Sun Jan 27, 2013 9:58 pm

Petrocelli has a nice method as described in his thread: viewtopic.php?f=1&t=103835
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: How do you keep yourself honest about your returns?

Postby Sidney » Sun Jan 27, 2013 10:14 pm

I don't calculate historical returns on the portfolio. I can see the returns of the individual funds -- for what that is worth. I can't change the past so I try not to dwell on it.
I always wanted to be a procrastinator.
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Re: How do you keep yourself honest about your returns?

Postby Rodc » Mon Jan 28, 2013 8:42 am

Just use something like Vanguard's S&P 500 fund, or maybe a little better Vanguard's TSM as your benchmark. That automatically includes dividends.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: How do you keep yourself honest about your returns?

Postby Boglenaut » Mon Jan 28, 2013 9:47 am

McCharley wrote:

Tax loss harvesting makes my portfolio look like a champ right about now! :sharebeer But I know it ain't true. :?


You make a point I made in several other threads. I purposefully do not calculate personal rate of returns. For a Boglehead using index funds and sticking with an allocation plan, you should be understanding how the indices you invest in behave, not the quirks of when you happened to do a TLH or invested a windfall.

Personal rate of returns are very misleading. The market doesn't care that you had an unexpected $20K bonus that happened to hit Jan. 8 or you did TLH on Feb. 7.
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Re: How do you keep yourself honest about your returns?

Postby dkturner » Mon Jan 28, 2013 9:57 am

Boglenaut wrote:
McCharley wrote:

Tax loss harvesting makes my portfolio look like a champ right about now! :sharebeer But I know it ain't true. :?


You make a point I made in several other threads. I purposefully do not calculate personal rate of returns. For a Boglehead using index funds and sticking with an allocation plan, you should be understanding how the indices you invest in behave, not the quirks of when you happened to do a TLH or invested a windfall.

Personal rate of returns are very misleading. The market doesn't care that you had an unexpected $20K bonus that happened to hit Jan. 8 or you did TLH on Feb. 7.


What about Bogleheads, like Jack Bogle and I, who also own actively managed funds? Where are Jack and I going to find a reasonably priced tax-exempt bond index fund to hold the fixed income portion of our taxable accounts?

Thanks for the suggestion, but I think I'll pass on the ignorance thing.
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Re: How do you keep yourself honest about your returns?

Postby bpp » Mon Jan 28, 2013 10:11 am

Every time I buy an individual stock, I pretend I bought an equal amount of the index fund I use as my benchmark. Then I just compare total values of my basket of stocks and the pretend index fund holdings. I ignore dividends, so if my dividend yield is significantly different from that of the index, my tracking error measurement would be off by that amount. However, that just seems too complicated to worry about. All I really want to know is that my stock basket is not hideously underperforming the equivalent index fund investment. So far so good, tracking error seems to be small enough that I don't think I'm fatally underdiversified, so good enough.
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Re: How do you keep yourself honest about your returns?

Postby Sam I Am » Mon Jan 28, 2013 10:23 am

Message deleted.
Last edited by Sam I Am on Sun Oct 06, 2013 6:24 pm, edited 1 time in total.
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Re: How do you keep yourself honest about your returns?

Postby ihckennedy » Mon Jan 28, 2013 12:37 pm

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Re: How do you keep yourself honest about your returns?

Postby Doc » Mon Jan 28, 2013 1:01 pm

McCharley wrote:I can XIRR my cash flows (I put money in and took money out over the year), but how do I add SP500 comparison data?


Go to Yahoo Finance and display the historic prices for the fund you would like to use as a benchmark. Then read the fine print.

* Close price adjusted for dividends and splits.


You can use Excel or even the simple calculator that comes with Windows to get an annualized return for any time period in the data base.
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Re: How do you keep yourself honest about your returns?

Postby Default User BR » Tue Jan 29, 2013 2:32 pm

I agree with some of the others. I can absolutely honestly say, "I don't know what my returns are." I do know what my asset allocation is and how it compares to target, and how much the total value is. That is what is important to me. Rate of return is not.


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Re: How do you keep yourself honest about your returns?

Postby jeffyscott » Wed Jan 30, 2013 9:31 pm

You can the last 5 year's quarterly and monthly total returns for the S&P 500 (or any fund) from morningstar.

http://performance.morningstar.com/fund ... ture=en-US
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Re: How do you keep yourself honest about your returns?

Postby McCharley » Sat Feb 02, 2013 4:33 pm

I thought I'd update this with my results.

I XIRR'ed everything in Excel, comparing my deposits and withdrawals to a mirror with just purchases and sells of SPY.

If I go back 5 years it turns out that I would have been better off with just the SPY. :oops:

I'm beating SPY for the year, tho'! :sharebeer

Did you guys need more proof that it is hard to beat index funds in the long haul? :annoyed
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Re: How do you keep yourself honest about your returns?

Postby Boglenaut » Sat Feb 02, 2013 5:17 pm

dkturner wrote:
Thanks for the suggestion, but I think I'll pass on the ignorance thing.


If you read my post, you will clearly see that I am not advocating ignorance. As I clearly state, for index investors, the key is to have a good understanding of how the indexes behave. The timing of individual contributions you made in the past are irrelevant to how markets will behave going forward.

Please read posts fully before responding and not mis-characterize other peoples' comments with derogatory statements.
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Re: How do you keep yourself honest about your returns?

Postby sscritic » Sat Feb 02, 2013 5:36 pm

If I were going to make drastic changes to my portfolio based on how it performed relative to a benchmark, I would want to know how my portfolio performed relative to a benchmark, but since I am not going to make drastic changes to my portfolio based on how it performed relative to a benchmark, I don't need to know how my portfolio performed relative to a benchmark.

I try to be purposeful about the things I do; since there is no purpose in comparing how my portfolio performs relative to a benchmark, I don't compare how my portfolio performs relative to a benchmark.
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Re: How do you keep yourself honest about your returns?

Postby dkturner » Sat Feb 02, 2013 7:20 pm

Boglenaut wrote:
dkturner wrote:
Thanks for the suggestion, but I think I'll pass on the ignorance thing.


If you read my post, you will clearly see that I am not advocating ignorance. As I clearly state, for index investors, the key is to have a good understanding of how the indexes behave. The timing of individual contributions you made in the past are irrelevant to how markets will behave going forward.

Please read posts fully before responding and not mis-characterize other peoples' comments with derogatory statements.


I was talking about Bogleheads, like Jack Bogle and me, who hold some actively managed funds. Some of us have also been known to move our money around, based on perceived valuation opportunities. If I didn't check on the return of my portfolio at least once per year I never would have known that I have managed to best a benchmark of Vanguard index funds which mirror my portfolio by 170 basis points per year for the last 18 years. :shock:
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Re: How do you keep yourself honest about your returns?

Postby ihckennedy » Thu Jun 27, 2013 9:06 am

Since your alternative to building your own stock portfolio is a mutual fund or ETF, you should keep score by maintaining a paper portfolio of, say, the Vanguard S&P 500 index fund as a benchmark.
But only if your stocks are selected from that opportunity set; if you invest mainly in small-cap stocks, for example, then it would be more appropriate to keep score versus a small-cap index like the Russell 2000.
For more on keeping score properly, see http://simplesmartinvesting.com/?p=212
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Re: How do you keep yourself honest about your returns?

Postby learning_head » Thu Jun 27, 2013 10:52 am

Well, which benchmark is right? I don't think comparisons vs SPY are proper really... I guess if you follow Boglehead way of investing, your investments are probably very close to your benchmark to begin with. For example, if your AA is 40% total bond market, 20% total US market, 10% small value as defined by index underlying VBR, 10% as REITs as defined by index underlying VNQ, 20% Total Intl market as defined by EEM, then your benchmark is that same collection of indexes in same proportions with same contributions and withdrawls as you make, and if you don't time the markets, then your contributions would match your benchmark as well. So only point in comparison vs benchmark "portfolio" is to see if you rebalanced "correctly" vs if you had no rebalancing costs I guess... ? But even then, how should your benchmark portfolio be rebalanced? Maybe the same way you do!

Now, if you decide to time markets a bit or say buy a stock that you want to keep track of vs benchmark, then your correct benchmark should still be the portfolio based on your desired / chosen AA... So to keep yourself honest you'd have to figure out what your portfolio would have done had you done it the "benchmark" way...
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Re: How do you keep yourself honest about your returns?

Postby Blues » Thu Jun 27, 2013 11:07 am

Default User BR wrote:I agree with some of the others. I can absolutely honestly say, "I don't know what my returns are." I do know what my asset allocation is and how it compares to target, and how much the total value is. That is what is important to me. Rate of return is not.


Brian


Just noticed that this is a revived thread, but I agree. Once upon a time I calculated all this minutiae via Quicken over a period of many years.
Finally, I asked myself "what's the point?" and stopped. (As a result my monthly/quarterly record keeping is much easier as well.)

As Brian says, I only care about where the rubber meets the road these days. Asset allocation (as it relates to my IPS) and total value.
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Re: How do you keep yourself honest about your returns?

Postby avalpert » Thu Jun 27, 2013 11:43 am

dkturner wrote:
Boglenaut wrote:
dkturner wrote:
Thanks for the suggestion, but I think I'll pass on the ignorance thing.


If you read my post, you will clearly see that I am not advocating ignorance. As I clearly state, for index investors, the key is to have a good understanding of how the indexes behave. The timing of individual contributions you made in the past are irrelevant to how markets will behave going forward.

Please read posts fully before responding and not mis-characterize other peoples' comments with derogatory statements.


I was talking about Bogleheads, like Jack Bogle and me, who hold some actively managed funds. Some of us have also been known to move our money around, based on perceived valuation opportunities. If I didn't check on the return of my portfolio at least once per year I never would have known that I have managed to best a benchmark of Vanguard index funds which mirror my portfolio by 170 basis points per year for the last 18 years. :shock:

Wow, you are so special - maybe you should have started your own fund and made money with your gift of successful market timing.

Perceived valuation opportunities have nothing to do with past returns - so need to track them for that. Holding active funds doesn't require you to know your personal past returns - so no need there. Seems like the only reason you and Jack Bogle would track past returns is so you can sound like good active investors when you pronounce how well you are doing at timing the market. Somehow I doubt Jack Bogle cares much about doing that but its nice that you do.
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Re: How do you keep yourself honest about your returns?

Postby MnD » Thu Jun 27, 2013 12:03 pm

I check my returns annually within and across all accounts against a small basket of index funds that mirror my overall AA.
I post the results here annually in the "year end results" thread and include the past couple of years before that. :mrgreen:

In taxable and IRA's, my brokerage tracks XIRR back to Jan 1 2009 individually by account and across all accounts.
For my 401-K I have a spreadsheet of XIRR back to 1987.

I have a bunch of old paper statements on taxable and IRA's (would keep the December statement "usually") that go a lot farther back than 2009 but I'm too lazy to compute XIRR farther back, and it would still probably have errors and omissions.
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Re: How do you keep yourself honest about your returns?

Postby umfundi » Thu Jun 27, 2013 12:16 pm

I stopped doing this long ago, when I realized there was nothing actionable I could do with the number.

Now, I track (occasionally look at) the total value of my investable assets, and look at the components every so often for rebalancing.

There was an interesting post by Wade Pfau that led to the question: What on earth do the indexes have to do with your plan? Exactly. What matters is how well you are tracking to your plan, not to the indexes.

So, I know this does not answer the OP's question, but put me firmly in the "Why bother?" camp.

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Re: How do you keep yourself honest about your returns?

Postby leonard » Thu Jun 27, 2013 5:30 pm

Achieved rate of return is not actionable. I wouldn't change my AA or rebalancing schedule based on it - so it would be a bunch of excel work for nothing.
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Re: How do you keep yourself honest about your returns?

Postby zaboomafoozarg » Thu Jun 27, 2013 8:35 pm

I tried to calculate my total rate of return until I realized:

1. It's difficult to combine all the activity in my different investment accounts to get a real number.
2. The different accounts do provide their own rate of return numbers automatically.
3. Even if I find out the total rate, what am I going to do about it? Nothing.

So I stopped trying, and just take a look at the amount that I have. That's good enough for me.
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Re: How do you keep yourself honest about your returns?

Postby Artsdoctor » Thu Jun 27, 2013 9:04 pm

It sounds as if I am clearly one of the more insecure Bogleheads. I have always kept track of my returns and I have always compared them to benchmarks which are similar in nature and simple. Why?

1. It keeps me honest. I have several different types of accounts and I don't have the opportunity to simply stick with a three fund portfolio. By measuring my performance, I am able to see that I am reaching my benchmark goals within a reasonable degree.

2. It teaches me a lot. I'm able to see how much (or how little) one big purchase can make in an annual return which underscores just how important luck can be. So when someone or something promotes "17.5% annual return," I know just how vague that might be. It's all in how the data have been mined.

3. It slowly gives me confidence. If I'm truly meeting my benchmarks despite having TIPS and munis to varying levels (I can't always control this), I've developed confidence in managing my own portfolio as it has grown and this has taught me to look forward to retirement, as opposed to fearing it.

4. It keeps me from "getting too big for my britches." Investor overconfidence is a well-known problem and by keeping track of your personal return and comparing it to a reasonable set of benchmarks, you're doing a reality check.

5. I'm able to pick up a problem which I may not have been aware of. I'd rather find out after a year that I've made a mistake than find out five years later.

I'm managing my immediate family's portfolio, my parents' portfolio, my in-law's porfortlio, and several friends' portfolios. I have been doing this for years and I am held accountable to myself and to them. I would be very uncomfortable not being able to measure my performances and compare them to comparable benchmarks.

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Re: How do you keep yourself honest about your returns?

Postby EmergDoc » Thu Jun 27, 2013 9:19 pm

I keep track of my actual XIRRed personal return from the day I first started investing. The reason? So I know if my assumptions are reasonable. My investing plan is to get 5% real returns. I'm slightly ahead right now. If I were way behind, I'd revisit those assumptions. Too many people have absolutely no idea how they're doing. I think that's a problem. It's not about beating the guy next door or the S&P 500. It's about progress toward your goal, and an important variable in that equation is your returns.
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Re: How do you keep yourself honest about your returns?

Postby McCharley » Fri Jun 28, 2013 1:07 am

I am surprised how many people choose to turn a blind eye to their returns. 8-)

My goal has been to hold 30 stocks that outperform the market -- or at least match it.

Part of this "hobby" is to obsessively check performance: I look every day. :greedy I trade very little.

For me this is just a way to trick myself into saving money. Joke's on me because I enjoy it! :sharebeer

I would encourage more Bolgeheads to invest in individual stocks -- as long as you do a bunch of them you'll pretty much match the index, and it has great entertainment value.
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Re: How do you keep yourself honest about your returns?

Postby Default User BR » Fri Jun 28, 2013 1:34 am

EmergDoc wrote:I keep track of my actual XIRRed personal return from the day I first started investing. The reason? So I know if my assumptions are reasonable. My investing plan is to get 5% real returns. I'm slightly ahead right now. If I were way behind, I'd revisit those assumptions. Too many people have absolutely no idea how they're doing. I think that's a problem. It's not about beating the guy next door or the S&P 500. It's about progress toward your goal, and an important variable in that equation is your returns.

You don't need your rate of return to know how you're doing. You need the total. THAT is what tells you your progress towards goals. I didn't set out to make any particular rate, because that's not a useful goal. The amount you have is.

I think messing around with rate of return just encourages people to monkey with their allocations. All I care about is the bottom line and how the asset allocations compare to target.


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Re: How do you keep yourself honest about your returns?

Postby nedsaid » Fri Jun 28, 2013 1:38 am

I track my returns in Quicken and compare them to a blended index.
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Re: How do you keep yourself honest about your returns?

Postby EmergDoc » Fri Jun 28, 2013 1:58 am

Default User BR wrote:
EmergDoc wrote:I keep track of my actual XIRRed personal return from the day I first started investing. The reason? So I know if my assumptions are reasonable. My investing plan is to get 5% real returns. I'm slightly ahead right now. If I were way behind, I'd revisit those assumptions. Too many people have absolutely no idea how they're doing. I think that's a problem. It's not about beating the guy next door or the S&P 500. It's about progress toward your goal, and an important variable in that equation is your returns.

You don't need your rate of return to know how you're doing. You need the total. THAT is what tells you your progress towards goals. I didn't set out to make any particular rate, because that's not a useful goal. The amount you have is.

I think messing around with rate of return just encourages people to monkey with their allocations. All I care about is the bottom line and how the asset allocations compare to target.


Brian


I guess if you've somehow plotted out how much you're supposed to have in any given year then you don't need your rate of return, but it's still implied in your calculation. It just seems silly to me to have a goal which is a result of several variables which are easily calculated and tracked, and then not track/calculate those variables as you go along (such as savings rate, net worth, and return.) The idea that knowing how I'm doing somehow "encourages me to monkey around" is kind of silly. I think people are MORE likely to monkey around inappropriately if they have no idea what kind of returns they need and what kind they are getting. Worse, they're likely to not save enough if they think they're getting 10% when they're really getting 4%.
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Re: How do you keep yourself honest about your returns?

Postby LaraZP » Fri Jun 28, 2013 9:15 am

Default User BR wrote:
EmergDoc wrote:I think messing around with rate of return just encourages people to monkey with their allocations.

I just monkey around with my Google spreadsheet, which grows more and more baroque by the day.
It satisfies my need for tinkering without doing any actual damage to my investments.
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Re: How do you keep yourself honest about your returns?

Postby livesoft » Fri Jun 28, 2013 9:25 am

Even though I use benchmarks and XIRR(), so that I know my return, I still cheat in the following way:

Sometimes I invest my short-term bonds in things like small-cap value index or emerging markets index on an RBD for a week or two and expect to make 4%. So I do well versus my benchmarks, but I had more "risk" for parts of the year that my benchmarks did not.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: How do you keep yourself honest about your returns?

Postby IlliniDave » Fri Jun 28, 2013 9:30 am

I just use what Vanguard and Fidelity tell me, both give me a time-weighted personal return. For me it's mostly a curiosity, I have goal total balance profiles for both account sets and that's my primary way of tracking progress.
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Re: How do you keep yourself honest about your returns?

Postby Default User BR » Fri Jun 28, 2013 10:54 am

EmergDoc wrote:I guess if you've somehow plotted out how much you're supposed to have in any given year then you don't need your rate of return, but it's still implied in your calculation. It just seems silly to me to have a goal which is a result of several variables which are easily calculated and tracked, and then not track/calculate those variables as you go along (such as savings rate, net worth, and return.) The idea that knowing how I'm doing somehow "encourages me to monkey around" is kind of silly. I think people are MORE likely to monkey around inappropriately if they have no idea what kind of returns they need and what kind they are getting. Worse, they're likely to not save enough if they think they're getting 10% when they're really getting 4%.

How is a return percentage a useful goal? If you make 5% but don't save enough, it gets you nowhere. Milestones, including retirement number, are the useful metrics. And those are easy to compute accurately, unlike personal rate of return. All one has to do is add up all the assets. Then it's seeing where you are in the progression to final goal. What you have there is a rate of increase, which is a MUCH better number than rate of return, and easy to calculate accurately. That's because it's a Beardstown Ladies' increase, which includes account additions.

So if you're halfway to retirement and are only a third of the way to your projected number, you have a problem. It doesn't matter if you matched the 5% rate of return you calculated. You can't spend a rate. You spend money, and you need to learn to focus on the number instead of the rate.


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Re: How do you keep yourself honest about your returns?

Postby MnD » Fri Jun 28, 2013 12:27 pm

If you rebalance using bands or a calendar schedule you probably made some pretty big moves into and out of equities over the past 15 years - tech boom, tech crash, 9-11, housing/debt bubble, housing/debt crash, post-crash recovery. That's probably what I'm most interested in having some accountability on. Are these moves helping, hurting or no difference? Likewise on the impact of the 2 or 3 individual stocks I typically hold.

if I just pushed money into broad index funds according to my AA every two weeks, individual return figures would be not very interesting or useful. Of course I also check progress on net worth and retirement savings goals (my "number"). Tracking performance doesn't preclude doing other forms of monitoring.
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Re: How do you keep yourself honest about your returns?

Postby EmergDoc » Fri Jun 28, 2013 12:35 pm

Default User BR wrote:
EmergDoc wrote:I guess if you've somehow plotted out how much you're supposed to have in any given year then you don't need your rate of return, but it's still implied in your calculation. It just seems silly to me to have a goal which is a result of several variables which are easily calculated and tracked, and then not track/calculate those variables as you go along (such as savings rate, net worth, and return.) The idea that knowing how I'm doing somehow "encourages me to monkey around" is kind of silly. I think people are MORE likely to monkey around inappropriately if they have no idea what kind of returns they need and what kind they are getting. Worse, they're likely to not save enough if they think they're getting 10% when they're really getting 4%.

How is a return percentage a useful goal? If you make 5% but don't save enough, it gets you nowhere. Milestones, including retirement number, are the useful metrics. And those are easy to compute accurately, unlike personal rate of return. All one has to do is add up all the assets. Then it's seeing where you are in the progression to final goal. What you have there is a rate of increase, which is a MUCH better number than rate of return, and easy to calculate accurately. That's because it's a Beardstown Ladies' increase, which includes account additions.

So if you're halfway to retirement and are only a third of the way to your projected number, you have a problem. It doesn't matter if you matched the 5% rate of return you calculated. You can't spend a rate. You spend money, and you need to learn to focus on the number instead of the rate.


Brian


I disagree, but doubt I'll convince you. So I'll just agree to disagree. I'm surprised you think calculating an overall portfolio personal rate of return is difficult. It involves inserting about 10 lines into a spreadsheet a year.
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Re: How do you keep yourself honest about your returns?

Postby pennstater2005 » Fri Jun 28, 2013 12:39 pm

I don't spend too much time worrying about returns. My main concern is making sure I save enough. I think for most people savings rate should be the main concern.
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Re: How do you keep yourself honest about your returns?

Postby Default User BR » Fri Jun 28, 2013 12:44 pm

EmergDoc wrote:I disagree, but doubt I'll convince you. So I'll just agree to disagree. I'm surprised you think calculating an overall portfolio personal rate of return is difficult. It involves inserting about 10 lines into a spreadsheet a year.

I didn't say it would be difficult for me. I'm sure I could do so, as I'm pretty familiar with spreadsheets and a software professional. I would need to restructure things so that additions to the portfolio were clearly delineated. They aren't now, especially with the 401(k) figures. Right now that is imported from a small balances table.

However, I think it's an area where a number of people trying it would have some problem getting accurate figures.


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Re: How do you keep yourself honest about your returns?

Postby TomatoTomahto » Fri Jun 28, 2013 12:52 pm

pennstater2005 wrote:I don't spend too much time worrying about returns. My main concern is making sure I save enough. I think for most people savings rate should be the main concern.

If you're young, I agree with you. But, at my age, I'm not particularly interested in my rate of return, nor frankly in how much I save. I am interested in seeing my assets reach and maintain a suitable level. I don't worry about a bad month or two, nor decide that a good month or two means that I'm a genius who should buy a Bentley.
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Re: How do you keep yourself honest about your returns?

Postby EmergDoc » Fri Jun 28, 2013 12:56 pm

Default User BR wrote:
So if you're halfway to retirement and are only a third of the way to your projected number, you have a problem.


No you don't. You have a really weird path to wealth if this is true. Consider someone who contributes $50K a year to his retirement over 30 years, earning 8%. You'll want $6.1 M in retirement. At the halfway point, you have $1.5 M, or about 1/4 of the way to your projected number. Even if you change it to 5% and 20 years ($1.7 M goal), you're still only at 38% of your goal at the halfway mark. If you're like most people and contributions increase over the years, it would be even less. Just a side point, having nothing to do with the main argument.
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Re: How do you keep yourself honest about your returns?

Postby Grt2bOutdoors » Fri Jun 28, 2013 1:22 pm

I do track the returns of my low-turnover large cap value individual equity portfolio.
For main retirement accounts, I'm more interested in account value growth and ensuring I remain within IPS asset allocation. Right now, the amount of savings per year is more important and will dictate whether I make my target of 30x expenses in retirement.
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Re: How do you keep yourself honest about your returns?

Postby Grt2bOutdoors » Fri Jun 28, 2013 1:23 pm

EmergDoc wrote:
Default User BR wrote:
So if you're halfway to retirement and are only a third of the way to your projected number, you have a problem.


No you don't. You have a really weird path to wealth if this is true. Consider someone who contributes $50K a year to his retirement over 30 years, earning 8%. You'll want $6.1 M in retirement. At the halfway point, you have $1.5 M, or about 1/4 of the way to your projected number. Even if you change it to 5% and 20 years ($1.7 M goal), you're still only at 38% of your goal at the halfway mark. If you're like most people and contributions increase over the years, it would be even less. Just a side point, having nothing to do with the main argument.


8% sounds like a stretch. Saving $6.1MM?, wow, that ought to be some retirement.
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Re: How do you keep yourself honest about your returns?

Postby MnD » Fri Jun 28, 2013 1:51 pm

I don't think most investment firms want people to know their individual long-term return number, since according to research it's significantly lower than the indexes due to poor timing (buy high, sell low) and expenses. Schwab "portfolio return" section goes back only to Jan 2009.
Even the federal thrift savings plan with a fiduciary role doesn't provide that info to account holders, except on a past 12 month rolling basis. :annoyed
I think Fidelity only goes back two years, and you have to do a lot of clicking to get back more than one year.
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Re: How do you keep yourself honest about your returns?

Postby gkaplan » Fri Jun 28, 2013 1:56 pm

EmergDoc wrote:
Default User BR wrote:
EmergDoc wrote:I guess if you've somehow plotted out how much you're supposed to have in any given year then you don't need your rate of return, but it's still implied in your calculation. It just seems silly to me to have a goal which is a result of several variables which are easily calculated and tracked, and then not track/calculate those variables as you go along (such as savings rate, net worth, and return.) The idea that knowing how I'm doing somehow "encourages me to monkey around" is kind of silly. I think people are MORE likely to monkey around inappropriately if they have no idea what kind of returns they need and what kind they are getting. Worse, they're likely to not save enough if they think they're getting 10% when they're really getting 4%.

How is a return percentage a useful goal? If you make 5% but don't save enough, it gets you nowhere. Milestones, including retirement number, are the useful metrics. And those are easy to compute accurately, unlike personal rate of return. All one has to do is add up all the assets. Then it's seeing where you are in the progression to final goal. What you have there is a rate of increase, which is a MUCH better number than rate of return, and easy to calculate accurately. That's because it's a Beardstown Ladies' increase, which includes account additions.

So if you're halfway to retirement and are only a third of the way to your projected number, you have a problem. It doesn't matter if you matched the 5% rate of return you calculated. You can't spend a rate. You spend money, and you need to learn to focus on the number instead of the rate.


Brian


I agree. Plus I like to play around with spreadsheets. I've been thinking of charting my returns, as well, when I get some free time and educate myself on charting.

I disagree, but doubt I'll convince you. So I'll just agree to disagree. I'm surprised you think calculating an overall portfolio personal rate of return is difficult. It involves inserting about 10 lines into a spreadsheet a year.
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Re: How do you keep yourself honest about your returns?

Postby pennstater2005 » Fri Jun 28, 2013 2:15 pm

TomatoTomahto wrote:
pennstater2005 wrote:I don't spend too much time worrying about returns. My main concern is making sure I save enough. I think for most people savings rate should be the main concern.

If you're young, I agree with you. But, at my age, I'm not particularly interested in my rate of return, nor frankly in how much I save. I am interested in seeing my assets reach and maintain a suitable level. I don't worry about a bad month or two, nor decide that a good month or two means that I'm a genius who should buy a Bentley.


True. If you're closer to retirement or in retirement there would be a difference. At 34 my primary concern is savings rate.
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Re: How do you keep yourself honest about your returns?

Postby avalpert » Fri Jun 28, 2013 3:11 pm

EmergDoc wrote:
Default User BR wrote:
EmergDoc wrote:I keep track of my actual XIRRed personal return from the day I first started investing. The reason? So I know if my assumptions are reasonable. My investing plan is to get 5% real returns. I'm slightly ahead right now. If I were way behind, I'd revisit those assumptions. Too many people have absolutely no idea how they're doing. I think that's a problem. It's not about beating the guy next door or the S&P 500. It's about progress toward your goal, and an important variable in that equation is your returns.

You don't need your rate of return to know how you're doing. You need the total. THAT is what tells you your progress towards goals. I didn't set out to make any particular rate, because that's not a useful goal. The amount you have is.

I think messing around with rate of return just encourages people to monkey with their allocations. All I care about is the bottom line and how the asset allocations compare to target.


Brian


I guess if you've somehow plotted out how much you're supposed to have in any given year then you don't need your rate of return, but it's still implied in your calculation. It just seems silly to me to have a goal which is a result of several variables which are easily calculated and tracked, and then not track/calculate those variables as you go along (such as savings rate, net worth, and return.)


But your past return is not only not relevant to your future performance it is a distraction from the variables that matter going forward. If past returns aren't indicative of future performance when evaluating a fund why would you think they are in evaluating your own choices?

It isn't so much that it encourages monkey around, it is that it is not an informative variable in determining how you would expect your portfolio to perform going forward - which is what you really care about.
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Re: How do you keep yourself honest about your returns?

Postby Doc » Fri Jun 28, 2013 3:45 pm

I write an annual portfolio review describing the year's results along with a trading summary and asset class/subclass tables with actuals and targets. The benchmarks are described in the executive summary:

2012 Annual Review
 
Portfolio Performance:
 
We ended the year at … , up by $... or just under 8% which was just slightly above the previous high of $ … in April 2011. The overall return for the year was 10.5% compared to our benchmark[1] of 8.5%. Both the stock and bond components of our portfolio exceeded their respective benchmarks. Within the equity segment international and large cap stocks outperformed and small cap stocks underperformed the Wilshire 5000 (domestic) index. It should be noted that our benchmark only includes domestic securities. Similarly our bond portfolio is designed to follow a bond index (BarCap Intermediate Government/Credit Index) which has a shorter maturity than our portfolio benchmark and would be expected to have even lower returns.



[1] Benchmark: The bench mark consists of a blend of 40% Wilshire 5000 Index and 60% BarCap Aggregate Bond Index. (Changed from 45%/55%.) Data can be obtained from http://www.wilshire.com/Indexes/calculator/ , Morningstar or Vanguards web site


The procedure is not actionable which is exactly why I do it. The process itself helps keep me from straying from my IPS.

Using a very broad benchmark like a Wilshire 500/BarCap Agg blend is much more informative than a blend of index funds which mimics your portfolio. The latter is like looking in a mirror to see if you are still there.
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Re: How do you keep yourself honest about your returns?

Postby livesoft » Fri Jun 28, 2013 4:24 pm

Doc wrote:I write an annual portfolio review describing the year's results along with a trading summary and asset class/subclass tables with actuals and targets. The benchmarks are described in the executive summary:

I create an annual Morningstar "growth-of" chart with the funds of my major positions and annotate it with trades. I want all my sells to be at peaks and all my buys to be at troughs. Since I make very few buys and sells each year, the annotation is quite sparse. The graphical presentation is worth a thousand words.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: How do you keep yourself honest about your returns?

Postby EmergDoc » Sat Jun 29, 2013 4:40 am

Grt2bOutdoors wrote:
8% sounds like a stretch. Saving $6.1MM?, wow, that ought to be some retirement.


First, $6.1 M sounds like a lot now . I bet $1 M sounded like a lot in the 80s, no? Second, 8% might be high, but it's also what I've been doing for the last decade (actually 8.94% last I checked, but I think the market is down since then, certainly my bonds are), so I don't think it's that far fetched. But I suppose those who don't track these things might not know it's not a stretch.
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