Monday, July 27, 2015

Your Portfolio Return Over the Last Year Sucks

You may not be keeping track of your return on your portfolio over the last year.  Let me pass on some information -  it probably sucks compared to recent returns.

Lets say you had a portfolio allocation as follows (conservative allocation), with returns estimated based on equivalent Vanguard Index funds:
Fund TypeAllocation1 Yr Return
Domestic Bonds40.00%1.70%
Large Cap stock24.00%7.40%
Small Cap Stock6.00%5.21%
International Stock20.00%-6.69%
Cash10.00%1.00%
Total100.00%1.53%

So you made about 1.5%, which sucks in most peoples' minds.  Your particular return may be somewhat different depending on your exact allocation, buying and selling, etc.

But there is good news as well, let's look at the three year returns of the same portfolio.
Fund TypeAllocation1 Yr Return
Domestic Bonds40.00%1.36%
Large Cap stock24.00%18.27%
Small Cap Stock6.00%19.35%
International Stock20.00%10.86%
Cash10.00%1.00%
Total100.00%8.36%

Looks pretty good over 3 years, right?

So a few points to consider.  
  • Although most investors enjoyed high returns for the last 3 to 5 years or so, the last year was not as profitable, and this is normal.  Markets do not just keep going up and delivering double digit returns.
  • Returns are still positive.  Those of us old enough to live through extended market downturns remember double digit negative returns during some multi year periods.
  • It is important to stay in the market.  If you try to time your selling and buying, you will probably miss most of the eventual upturn and incur large transaction fees.
So yes, the return is not as good, but don't sweat it.  And, as always, do not believe everything you read on the Internet (like this blog) or in hard copy and consult a trusted financial advisor before making financial decisions.

Sources: WSJ.com mutual funds data

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