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EdLaFave

2018 was suboptimal.

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I hope we all have a better 2019, this is what 2018 looked like:

  • US Stock Market (VTSAX) was down 5.17% for 2018.
  • International Stock Market (VTIAX) was down 14.43% for 2018.
  • 70% of my stocks are domestic and 30% are international.
  • 92% of my portfolio are stocks and 8% are fixed income.
  • I invested 93k in 2018 and my portfolio is only 33k larger than it was when I started...roughly 60k up in smoke!

 

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30/70

2018 -1.97%. Worse showing and first loss since 2008. Interestingly, all of the volatility and negative returns occurred in Q4. But my portfolio is doing what its designed--follow the markets.

At the bottom of this post are the returns from all of the major benchmarks both foreign and domestic. In the international stock markets, only Brazil and India were positive in 2018. What in the world happened to the world economies? The international sector has not kept up with the domestic stock markets in recent years.  But take a look at my international bond index, up at 2.97%! And my total bond market index was supposed to a shellacking because of increasing interest rates, but it only lost -.05%. That's minuscule. 

Most of the public would pay an astronomical $20,000 for a fee-only financial adviser with an AUM fee of 1.0%, plus the costs of the investments. And $20,000 fee is conservative.  

For those who want to know what their financial adviser is doing ask them two questions (and DON'T get distracted by some hyperactive financial advisers):

1. What is my return for 2018? my portfolio return -1.97%. 

2. What are my costs, your costs and the costs of each investment?

My cost is 6.4 basis points (each bsp is one hundred of 1.0%. 10 basis points is equivalent to .10%, or 90 basis points is equivalent to .90% cost). Dollar figure: $1,024.00 for a seven-figure portfolio. This low cost allowed me to do the things I love to do in retirement, give to worthy causes (cancer research) and needy relatives, travel, concerts, dance lessons (individual lessons are not cheap), maintain and write my blog, give away my two books about finances and my 20 year experience with the hideous 403(b) system, and earn an Associate Producer role supporting a documentary about the financial independence movement, Playing with FIRE. 

 

Below I created tables and the data from my portfolio which is straight from Morningstar.com. 

 

 2018 Asset Allocation.JPG

2018 Asset Allocation2.JPG

2018 Investment COSTS.JPG

2018 Returns.JPG

 

Below are data for the major asset classes and the foreign countries' returns. 

2018_YEAR END Markets Returns.gif

1002676051_2018_YEARENDMarketsReturnsBarGraph.gif.61d5f2acd1e6d2f3cd9be9dcfbde187d.gif

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Approx 75/25 here.  According to the aggregator Personal Capital, my portfolio performance was minus 5.6%.  Suboptimal for sure, but well within the expected range of annual returns.

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Pushing this up in case some people missed this. 

What is your 2018 return, and how is your portfolio balanced between stocks and bonds?

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I don’t know how to figure out my return for the year.  Any suggestions?

My portfolio balance is 80/20

Total Stock:VTSAX - 50

Total International VTIAX - 30

Total Bond VBILX - 20

 

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It is a complicated answer because it depends on when you made contributions throughout the year and when/if you rebalanced throughout the year.

My suggestion is that you don't bother...one of the magnificent things about index funds is that you already know you got your fair share of returns. I focus most on how much I contribute each year because it is the only thing I can control...and I'll calculate the start/end value each year just to track my overall progress.

XIRR/Spreadsheet

If you have all of the following information:

  1. Value of portfolio at the beginning and end of the year.
  2. The date, amount, and total portfolio value of every sale/purchase.

Then you can enter that data into a spreadsheet and use the XIRR function to calculate an "internal rate of return".

PortfolioVisualizer

If you want a lower effort and less precise approximation then you can use Back Test Portfolio feature of PortfolioVisualizer to help.

If your stated portfolio had $100,000 at the beginning of the year, you added $1,000 each month, and you rebalanced each month then you would have ended the year with $104,309, which would have represented a -6.85% return.

If your stated portfolio had $100,000 at the beginning of the year and you did nothing then you would have ended the year with $93,050, which would have represented a -6.95% return.

...or so PortfolioVisualizer tells me.

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1 hour ago, EdLaFave said:

My suggestion is that you don't bother...one of the magnificent things about index funds is that you already know you got your fair share of returns. 

I like this advice.  There’s a year to date return number of -7.16% at the top of the page when I log into Security Benefit but, I don’t think that’s what you guys are talking about.

I rebalanced a bunch of times and messed around with asset allocation and what I thought was tilting to Small Cap and REITS.  In the end I learned that this just confused me and made me nervous about my investments.  My goal is to keep it simple and rebalance a few times a year.

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Rebalance is one of those overloaded words, but for me it means selling what you have too much of to buy what you have too little of.

If you direct new investments towards the asset class that you have too little of, then rebalancing should be very rare. I started investing in 2007 and haven’t had to rebalance a single time.

My yearly investments are 13% of my portfolio value. Once my new investments are dwarfed by my portfolio size, then directing new money towards underweight asset classes may not be enough and a true rebalance may be necessary. 

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On ‎1‎/‎1‎/‎2019 at 1:48 PM, EdLaFave said:

I hope we all have a better 2019, this is what 2018 looked like:

  • US Stock Market (VTSAX) was down 5.17% for 2018.
  • International Stock Market (VTIAX) was down 14.43% for 2018.
  • 70% of my stocks are domestic and 30% are international.
  • 92% of my portfolio are stocks and 8% are fixed income.
  • I invested 93k in 2018 and my portfolio is only 33k larger than it was when I started...roughly 60k up in smoke!

 

Ed, I think you said you are in you mid 30's. Your investing career started at a great time.  Did you think the markets would go up forever?  Embrace the occasional downturn and keep buying, and forget about FIRE until you are at least mid 40's.

 

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Come on, of course I didn’t think markets would go up forever. I’ve felt markets were overpriced for a little while...and still do.

Since graduating, I’m not sure I’ve gone a single paycheck without buying stock. I’ll never embrace a downturn; I’ll accept a downturn. I’ll always embrace a bull market.

There is a near 0% chance of me working into my mid-40s. Basing retirement on an arbitrary age isn’t sensible. It is a calculation that depends on years of retirement, spending needs, and portfolio size. 

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10 minutes ago, EdLaFave said:

Come on, of course I didn’t think markets would go up forever. I’ve felt markets were overpriced for a little while...and still do.

Since graduating, I’m not sure I’ve gone a single paycheck without buying stock. I’ll never embrace a downturn; I’ll accept a downturn. I’ll always embrace a bull market.

There is a near 0% chance of me working into my mid-40s. Basing retirement on an arbitrary age isn’t sensible. It is a calculation that depends on years of retirement, spending needs, and portfolio size. 

Why would you not embrace a downturn when you are in your peak earning years?  Buy low, and all that.  I understand the autistic/Asperger mindset because I have it myself.  Don't pull the plug too early just because the numbers seem right.

 

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I’ll never embrace a downturn because it means real people will be hurt in very real ways. Suicides, lost homes, lost jobs, lost savings, poverty, lost healthcare, lower economic output, and so forth. I don’t think an economy has to function in the extreme boom/bust fashion that I’ve observed over the past twenty years. I regard this as a societal and political choice we’ve made, not an intrinsic quality of markets.

If I were going to work into my mid-40s then I’d personally be more accepting of a downturn, but I still wouldn’t embrace it.

I’ve been open to quantitative arguments against FIRE. I’ve been open to arguments about how many years of expenses you need for a safe retirement in perpetuity. The only argument I’ve heard against retiring with 33x annual expenses is, “you never know.” I’ll remain open to arguments, but it has to outweigh the fact that I only have so many years alive and I know I don’t want to spend them in an office grinding away. 

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Our portfolio looks more like Ed's buy my philosophy is like Steve's - it reflects the markets. I know Ed and Steve expect downturns but for me, it doesn't make it easy to see it displayed so black and white. (I haven't checked those EOY reports just yet...) That said, I front load my 457 and my first paycheck just kicked in for 2019 calendar year. I'm not changing a thing...

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All of us regulars here have the same investing philosophy that I have read here and on Bogleheads since the late 1990s. That's the key. Invest in extremely low-cost ETFs or index funds that are worldwide diversified and a balance between stocks and bonds.  This philosophy came straight from Bogle, and its been tweaked slightly depending on individual needs. For example, I tilt slightly to small and mid-cap stocks with my Extended Market Index holding and my international stocks and bond investments. Bogle (and others) have said that you don't need international stocks, and bonds. 

Rebalancing comes in different flavors. When I was contributing during my working years, I would contribute to the asset class that was down. Now I transfer from the high asset to the low asset. For example, just last October, I transferred 2% of my stock holdings into my Total Bond Market when stocks were through the roof, and my stock allocation approached 35% so I reduced it down to 32%. I only rebalance when needed. The last time I made a significant move was when I transferred $250,000 to TIAA Traditional Annuity two years ago (3.0% with no surrender, no ongoing costs, and completely liquid with principal protection). 

BTW, all of the above I have learned through experiencing massive losses during the tech bubble, finding out my risk tolerance, and reading the posts of the good people at Bogleheads and reading about 50 investment books over the years. None of what I post here is original from me. What is original is what actually happens when an ordinary do-it-yourselfer (DIY) uses real money and applies a low-cost portfolio that is fully diversified, stays the course, and rebalances when needed and shares two of the most important facts in investing: diversification plan and COSTS.

For 25 years I have read, and read again not just from Bogle and the Bogleheads, but from others too, that high costs (1.0% or more) put a significant drain on one's long term earnings.   

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