Happy New Year!
How did your portfolio perform in 2014?
Today’s blog is not about competition, heaven forbid! We show you how we evaluated our return so that it is following the overall stock and bond market index returns. Our goal is to earn the market averages, not exceed them. We invite you to share your return, so we can all learn.
2014 was a good year for our investments. Our overall portfolio performed a 6.0% return. Any year the return exceeds inflation is a good year! We calculated our return by this simple formula: end-of-the-year-value minus beginning-of-the-year-value divided by the beginning-of-year-value. If you are working, take out all of your contributions. For retirees put all of your distributions back in. Obviously, this method is not precise as it does not take into account the impact of distributions and contributions, but you will get a ball park return average. For a calculator that takes into account the full impact of contributions and distributions throughout the year, log on to Bogleheads wiki and download a free Excel SS: https://www.bogleheads.org/wiki/Calculating_personal_returns.
For comparing returns across the different asset classes log on to Callan’s outstanding and informational annual table of which asset classes did well and which did not. Notice how the top performers one year become bottom feeders the next. That’s why its so important to diversify among the major asset classes. https://www.callan.com/research/files/989.pdf
Okay, how did our portfolio perform compared to Callan returns for 2014?
Our individual portfolio index fund returns
Explaining our portfolio return: By comparing some of the major holding funds in our portfolio to the Callan asset class returns, our Vanguard Total Stock Market ETF did what it was supposed to do by following the US domestic stocks and returned 12.54 (Callan’s table reports 13.69% for the S&P 500, the closest asset class to our Total Stock Market index, VTI). Callan’s Barclay’s Aggregate (bond index) returned 5.97%. Since 65% of our portfolio is in bonds and the international stock market lost money, our portfolio approximately reflected what was expected, 6.0%.
An additional way to evaluate our portfolio (and yours too) is by comparing our return to the almost 500 Bogleheads who reported their returns. Here is a Summary of Bogleheads’ returns: 73% of the Boglehead investors returned between 5.0% and 12.4%. If your portfolio was lower than 5.0%, you have a very conservative portfolio. If your portfolio did more than 12.4% you had better be a young investor because you are taking a lot of equity (stock) risk. Either way, if you don’t know how your plan is set up and don’t know your return, this is the time to talk with your adviser and find out. We are showing you how we evaluate our portfolio returns.
For additional information about individual Boglehead portfolio stock/bond split and other factors that explains this range of returns from 5.0% – 12.4% follow this link: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=154376
Hope this helps. Happy New Year! Steve and Dan
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