I never paid much attention to the monthly statements for the 401K and IRA accounts. Then about 4 years ago I was unemployed, approaching another birthday and thinking the future. It took two long days to work through 20+ years of investing history to figure out exactly what we had earned in the stock market. What I discovered made me sick.
First, we made a lot of money in the 80’s and 90’s. Then we lost some money from 2000 through 2008. But here’s the really bad news. We had not kept pace with the DJIA. All those fees paid to money fund managers and financial advisors were for naught. We’d been better off in a Dow index fund. I felt terrible, like an idiot, for not paying attention and I vowed to be a better investor!
I started by meeting quarterly with my financial advisor to gain a better understanding of our strategy. I’m a reasonably smart guy and know a few things about finance but these meetings left me confused and frustrated. A few quarters later I told her all she needed to do was beat the Dow. We used the following spreadsheet to track our progress:
After 7 quarters she was falling further and further behind and our portfolio was down $43K, compared with the DOW. The next time we talked she said her strategy was long term and measuring quarterly against the DJIA would continue to disappointment me. I hung up the phone and thought about that for awhile. It was her strategy, I didn’t understand it and I was concerned she might be wrong. I couldn’t afford another 10 years of no-growth and not beating the DJIA was inexcusable.
I did a little research on the Internet and discovered more than 50% of financial advisors failed to outperform the DJIA. I knew I didn’t have a system for investing in stocks and if the majority of financial advisors could not achieve this benchmark, what chance did I have of doing any better? A few quarters later I moved all our money out of the stock market.
If you have a system for investing in the stock market and can consistently make money and beat the Dow, good for you! For everyone else, pull out those statements and figure out exactly what you’ve earned over the past 5, 10, or 20 years. Learn how to calculate a compound growth rate (the rate you actually earned) and don’t rely on the inflated, average growth rate used by the financial industry and contained in all mutual fund marketing and reporting materials.
If you’re frustrated with your returns from the stock market then stop doing the same thing over and over again and hoping for different results. Take control of your financial future! Consider adding income producing property (IncP) to your portfolio so you can retire earlier, with more income and avoid out-living your retirement “nest egg!”
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