Rate of return in negative

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Guacamole
Posts: 10
Joined: Wed Aug 15, 2018 11:15 pm

Rate of return in negative

Post by Guacamole » Sun Oct 07, 2018 11:58 am

New to investing & started my 401k around month & half ago. I am investing $1500/month to Vanguard Instl Trgt Retire 2050 Instl. I know rate of return fluctuates but it's currently at (-1.50%). Rate of return is in negative. Is this normal & expected?

User avatar
Phineas J. Whoopee
Posts: 7691
Joined: Sun Dec 18, 2011 6:18 pm

Re: Rate of return in negative

Post by Phineas J. Whoopee » Sun Oct 07, 2018 12:08 pm

Guacamole wrote:
Sun Oct 07, 2018 11:58 am
New to investing & started my 401k around month & half ago. I am investing $1500/month to Vanguard Instl Trgt Retire 2050 Instl. I know rate of return fluctuates but it's currently at (-1.50%). Rate of return is in negative. Is this normal & expected?
Hi Guacamole.

Yes, stocks and bonds (both of which your fund holds) fluctuate up and down, stocks normally much more than bonds. Over a 45 day period, a month and a half as you say, the changes are all but random.

It is not a surprise that such a thing happens. It will happen many times again.

I hope this helped.

PJW

retiredjg
Posts: 34373
Joined: Thu Jan 10, 2008 12:56 pm

Re: Rate of return in negative

Post by retiredjg » Sun Oct 07, 2018 12:10 pm

Guacamole wrote:
Sun Oct 07, 2018 11:58 am
Is this normal & expected?
Absolutely. Stock values go up and down. Bond values go up and down. So target funds go up and down. This is normal. You'll get used to it.

User avatar
ruralavalon
Posts: 14250
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Rate of return in negative

Post by ruralavalon » Sun Oct 07, 2018 12:12 pm

Guacamole wrote:
Sun Oct 07, 2018 11:58 am
New to investing & started my 401k around month & half ago. I am investing $1500/month to Vanguard Instl Trgt Retire 2050 Instl. I know rate of return fluctuates but it's currently at (-1.50%). Rate of return is in negative. Is this normal & expected?
It's no surprise, both stocks and bonds decline sometimes.

It's unfortunate that this happens just when you are starting out.

Don't be discouraged, keep contributing to your 401k.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

User avatar
Kenkat
Posts: 4439
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Rate of return in negative

Post by Kenkat » Sun Oct 07, 2018 12:26 pm

Normal. Look at it this way - in two months you will have saved $3,000. If you investments are down -1.5%, that’s $45. Your savings will completely overwhelm any investment losses, or gains, when you are first starting out. Savings rate is far more important early in your investing career than returns of those investments.

User avatar
BL
Posts: 8441
Joined: Sun Mar 01, 2009 2:28 pm

Re: Rate of return in negative

Post by BL » Sun Oct 07, 2018 1:24 pm

Sure, it means you are buying at bargain rates!

delamer
Posts: 6393
Joined: Tue Feb 08, 2011 6:13 pm

Re: Rate of return in negative

Post by delamer » Sun Oct 07, 2018 1:45 pm

Very normal.

Investing, especially for retirement, is a long-term activity.

Many people on this forum had their 401(k)s decline in value by 30% or more during the Great Recession of 10 years ago.

The ones who held on and kept making contributions are very glad they did.

Good luck.

pkcrafter
Posts: 13126
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Rate of return in negative

Post by pkcrafter » Sun Oct 07, 2018 1:46 pm

Guacamole wrote:
Sun Oct 07, 2018 11:58 am
New to investing & started my 401k around month & half ago. I am investing $1500/month to Vanguard Instl Trgt Retire 2050 Instl. I know rate of return fluctuates but it's currently at (-1.50%). Rate of return is in negative. Is this normal & expected.
Whoops, stop and reread what your wrote, "I know rate of return fluctuates.." so yes, that's exactly what happened, and it's normal. You will see much higher fluctuations in your investing travels.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

mortfree
Posts: 1319
Joined: Mon Sep 12, 2016 7:06 pm

Re: Rate of return in negative

Post by mortfree » Sun Oct 07, 2018 1:48 pm

If your fund distributed a dividend or capital gain and that was re-invested, then that also is used for your rate of return calculation.

If I’m wrong someone will say something.

tibbitts
Posts: 8105
Joined: Tue Feb 27, 2007 6:50 pm

Re: Rate of return in negative

Post by tibbitts » Sun Oct 07, 2018 1:49 pm

Guacamole wrote:
Sun Oct 07, 2018 11:58 am
New to investing & started my 401k around month & half ago. I am investing $1500/month to Vanguard Instl Trgt Retire 2050 Instl. I know rate of return fluctuates but it's currently at (-1.50%). Rate of return is in negative. Is this normal & expected?
You have to be prepared for much, much larger losses. Recovery, even after years, is not guaranteed. If you aren't prepared for that, this would be the time to revisit your allocation.

Teague
Posts: 1218
Joined: Wed Nov 04, 2015 6:15 pm

Re: Rate of return in negative

Post by Teague » Sun Oct 07, 2018 2:49 pm

Not only is it normal and expected - It's actually a good thing in the long run if you keep investing this way. Hard to believe I know, and counter-intuitive. But true, in the long run. Stick around a while and that will make more sense. :happy
Semper Augustus

User avatar
sigmadave_2000
Posts: 9
Joined: Fri Aug 03, 2018 11:21 pm

Re: Rate of return in negative

Post by sigmadave_2000 » Sun Oct 07, 2018 3:02 pm

Well, you have to understand that you have invested in a fund that's volatile. I looked on MorningStar and according to them, your fund VFIFX has the following record:

2013 24.34% total return
2014 7.18%
2015 Negative1.58%
2016 8.85%
2017 29.39%
2018 (Until 9/30) 4.42%

The average ten year return for this fund is 9.64%, which in my opinion is really good. Your fund is mostly (90%+) invested in Stocks, so you can expect to have a lot of periods when the value of your account goes down.

I would stick with it if I were you. I am invested at Vanguard in the same indices.

My Finance Professor explained your trade-off this way you either eat well or sleep well. That said, there are a couple of things to keep in mind (1) some people, including Mr Bogle, in the following decade returns to US equities will have depressed returns ~4% as the Federal Reserve tightens monetary policy, and stocks make up for the fact that recent returns have been higher than normal and (2) if you invest in something safe like treasury bills or in a Money Market fund you will not have to worry a lot about your nest egg decreasing in value, but you will be lucky if you earn enough to make up for inflation.

porpoise
Posts: 1
Joined: Sun Oct 07, 2018 2:09 pm

Re: Rate of return in negative

Post by porpoise » Sun Oct 07, 2018 3:57 pm

Your concern is understandable, especially since you are new to investing.

I would suggest that you go to morningstar.com or finance.yahoo.com -- two great sources of impartial information. Look at the performance of some stocks or funds that you know about and view their performance for one month. six months, one year, and five years. When you'll see how distorted a brief time period is relative to overall performance. (Six weeks is an extremely sort time frame in the investing world.) It is a poor predictor of long-term results. You'll see that all investment options go up and down in the short term; what you want to watch is how the investment looks over 3-, 5- and 10-year periods and under varying conditions (like during the Great Recession).

Guacamole
Posts: 10
Joined: Wed Aug 15, 2018 11:15 pm

Re: Rate of return in negative

Post by Guacamole » Thu Oct 11, 2018 8:08 pm

Thanks guys. Glad I asked because since yesterday my ROR is at negative -6.25%. I am going to park my money as it and keep contributing every paycheck :)

MotoTrojan
Posts: 2603
Joined: Wed Feb 01, 2017 8:39 pm

Re: Rate of return in negative

Post by MotoTrojan » Thu Oct 11, 2018 8:29 pm

Guacamole wrote:
Thu Oct 11, 2018 8:08 pm
Thanks guys. Glad I asked because since yesterday my ROR is at negative -6.25%. I am going to park my money as it and keep contributing every paycheck :)
What do you mean by park your money as it? You should keep contributing to your 2050 fund, especially now with US & International stocks and bonds being a good deal cheaper than they were last week!

As an early accumulator, a bear-market/down-market is actually the best thing you could ask for as it means you can acquire more shares for your $1, and eventually end up ahead.

Great choice in your 401k. You are close to maxing out the full $18.5K/year at $1500/month so maybe up that, and also consider opening a Roth IRA and striving to contribute there as well. In retirement it is handy to have some pre-tax (traditional IRA or 401k) and some post-tax (Roth) assets to pull from.

User avatar
arcticpineapplecorp.
Posts: 3482
Joined: Tue Mar 06, 2012 9:22 pm

Re: Rate of return in negative

Post by arcticpineapplecorp. » Thu Oct 11, 2018 8:56 pm

welcome to the group!

Since you're new to investing, you missed out on the last big drop about 10 years ago. If you think a -1.50% ROR is bad here's how much a $10,000 investment on 10/1/2007 would have been worth by 3/6/2009 (peak to trough last recession) in the Vanguard total U.S. stock market index fund (admiral shares):

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

That's right, you'd have lost 54% of your investment from just a year and a half before ($10,000 became worth $4641.77)

Here's the thing. You don't invest for days, weeks, months or even years. You invest for decades. Most start investing in their 30s or even 40s (but 20s if lucky/smart). Even starting at your 40s you've got 20-30 years before retirement. That's 30 years to be invested. Then when you retire, you'll stay mostly invested, only withdrawing small amounts each year (4% usually recommended) to get your portfolio to last as long as you do (best to plan to live long so you don't run out of money prematurely unless your health indicates otherwise). So if you live to be in your 90s that means your money will be invested for many many decades. Think long term. Investing is a marathon, not a sprint.

Here's what has happened if we don't stop the clock at 3/6/2009 but instead look at what you'd have from that same $10,000 investment on 10/1/2007 until now (including those nasty two last days):

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

That's right. You'd have doubled your money if you continued holding your investment (turned $10,000 into $23,007.36). That's the hold in "buy and hold". Corrections, recessions, crashes, etc. have a way of separating investors from speculators. Which do you want to be?


Also realize that losses happen more often than you might think:

Image

source: https://am.jpmorgan.com/blob-gim/138340 ... cale=en_US

Do you see how "Despite average intrayear drops of 13.8%, annual returns were positive 29 of 38 years"?

See how you have to "stay the course" to get the positive returns? That's what buy and hold/stay the course means. Patience wins the day. But you've got to stay in the market to get the generous return of the market.

The day to day moves as has been said are noise, nothing more.

"In the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company."

source: https://www.google.com/search?q=in+the+ ... fox-b-1-ab
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

Guacamole
Posts: 10
Joined: Wed Aug 15, 2018 11:15 pm

Re: Rate of return in negative

Post by Guacamole » Sun Oct 14, 2018 12:04 am

Thanks a lot for information. I will keep contributing to my Roth 401k and not worry at all. Thanks to all..

Post Reply