Monday, February 17, 2014

Progress Update

Six months ago I blogged about my epiphany into taking my retirement savings into my own hands. I realized that I had been brainwashed like 99% of the people out there into believing that investing my own retirement savings was hard and that I wouldn't get the same returns as someone who does it professionally. In reality, investing is quite easy and I'm saving around 5% of every dollar I invest by doing it myself instead of paying someone to do it for me. I decided to do a six month check up and see how my progress has been.

First up, I looked at my account with a professional financial adviser who has invested all of my retirement savings for the last decade. Although I stopped giving him new money six months ago, he still has my original retirement accounts. He is a nice guy and I'm sure is trying to do the best job possible for me but he still believes that he can invest money better than I can by selecting the next hot market sectors and moving money around appropriately. In the last six months, my account grew by 2.4%.

Now lets look at my Vanguard account that I set up in about ten minutes online and had my first chunk of cashed out company stock wired directly to them. I invested in a the Boglehead 3-fund portfolio which is simply index funds that mirror the entire U.S. Stock market, the entire International Stock Market and the entire U.S. Bond market. Because it didn't cost me any management fees, I automatically invest 5% more money than I would have with my professional adviser but for the sake of argument, lets forget about that significant amount of money. In the last six months, my account grew by 4.7% or nearly 100% better than my professionally trained financial adviser. One word of note is that 4.7% is the average of all three indexes I own for an apples to apples comparison. The U.S. stock market index has done way better but in the interest of diversification, I don't have all my apples in that basket though in hindsight, I wish I had over the last six months!

So my conclusion so far is that not only am I doing better than my financial adviser at investing, I am doing better than 80% of all financial advisers in the world who try to beat the market and don't after expenses are figured in. Instead I am just matching the market and right now, my decision to take my retirement savings investing by the horns is paying off. Now the question is how long do I give my financial adviser before I pull out the money he is currently managing and start doing that by myself too?


Anonymous said...

Ask him why ?. Have you given instructions to be very conservative. And is this 2.4% above the Risk Free Rate marked by the T-Bill. That rate seem to be above 2.5 since July but below 2 earlier.
Had he put your cash into S&P IVV tracked funds you'd be sipping Móet at 20% YTD.
It seems odd, that's all I'm saying. What I don't see though is if you remove the money and invest in 10 year bonds how much worse can you be than you are now. If what you're up to is having a low risk and higher risk seperation.

Ed said...

Vince - I know the reason and it is the same reason that 80% of the stock brokers out there fail to meet the market. They try to predict the next hot market sector and shift funds accordingly. The reason they fail is that no one can predict the future. The reason my portfolio now beat my stock broker is because I'm not trying to beat the future. I'm just meeting the present and as you said, the S&P tracked fund that is a major part of my portfolio has had a very good year. Unfortunately for me, I wasn't able to cash out my first portion of company stock to catch the first part of the wave.

Currently I am investing with my age minus 10 in bonds. The common wisdom is your age in bonds. I think I can withstand the extra risk of ten less percent of my portfolio because of my conservative lifestyle if the markets were to go into the crapper and the fact that I'm not planning on touching any of this money yet for another 20 years.

Ron said...

Index funds sure do simplify things.

I cannot imagine paying someone else to gamble... er, invest... my money.

Anonymous said...

Yes and that 5% p/a compounded will add nicely to any end result.

warren said...

I have always figured the same...I mean, it's hard to beat index funds. So I did pretty much the same thing you did. I read a lot that said index funds have almost always done better than advisers and without the overhead. And really, who ever calls their adviser and really gets solid, personalized advice anyhow...not us small guys anyhow

Ed said...

Ron - It sure does simplify things and the cherry on the top is that it does better. It's like gambling and knowing the order of the deck!

Vince - I only wish I had figured this all out 20 years ago instead of now.

Warren - You are ahead of the game then. I wish I had known about index funds 20 years ago and then I would also have needed to know about John Bogle as well. Better late than never!