In my
last entry, I wrote about the expected returns for my portfolio. How has it played out during my limited investing career?
Annualized ReturnsAfter pulling my numbers together, I have:
Nominal Real
CPI Return Return
---------------------------------------
1996 2.93% 22.70% 19.77%
1997 2.34% 16.80% 14.46%
1998 1.55% 14.90% 13.35%
1999 2.19% 20.70% 18.51%
2000 3.38% -1.30% -4.68%
2001 2.83% -4.80% -7.63%
2002 1.59% -19.80% -21.39%
2003 2.27% 27.10% 24.83%
2004 2.68% 9.80% 7.12%
2005 3.39% 6.70% 3.31%
2006 3.24% 16.90% 13.66%
2007 2.85% 4.00% 1.15%
2008 3.86% -17.50% -21.36%
2009 2.49% 16.10% 13.61%
---------------------------------------
2.68% 7.05% 4.32%
At 7.05% nominal and 4.32% real, I appear to be on track. Considering all the articles about the "lost decade" of investing, I'm not too unhappy with my returns. Like the over-used sports cliche, it is what it is.
Dollar Returns
Unfortunately, since I am in the portfolio build-up phase, the great returns of 1996 to 1999 only worked on a small amount of money. The following is a graph of my dollar returns and it looks far different from the pure annualized numbers.
The numbers look pretty exciting during 2008 and 2009 as the amplitude is 3.5-4 times larger than any other movement in the previous 12 years. Without any further context, the first reaction would be "heart attack".
ContributionsAfter stacking on my contributions, the graph changes dramatically.
The above picture explains why I will probably be able to retire on a 0% real return. My savings rate simply overwhelms the market gains/losses. Even in the turbulent 2008 (up to March 2009) when the most equity markets dropped 50%, my net worth went up anyways. Combined with the 2009 rebound, the line seems to go up a cliff.
Near Future Projections
With the market position of my company, I'm confident I can keep my savings rate high for the next 10 years. I doubt I will stay in China forever so if I factor the extra increase in living expenses, the coming 2 decades might look like so:
The above picture tells me if I keep my my savings rate up, what the market does will not materially affect me for another 10 years or longer. Sometime in the mid 2020's is when market gains might become a significant part of my net worth.
Business EquityAll the above graphs though only show my liquid/semi-liquid portfolio. If I added my business equity using the conservative formula of 1X annual sales, the picture changes even more.
The estimate of my business equity appear twice the size of my investment contributions. By comparison, the green sliver representing market returns now look like statistical noise. What this picture tells me is to concentrate on my business ventures. Passive investments work nicely to produce income for retirement but during the prime of a working career, improving attitude, ideas, skills, experience, network, etc. to reach for the brass ring seem far more important.
Far Future Projections
In my last entry, I mentioned my goals for the future is to save enough where I spend just my contributions in retirement and leave any returns for my heirs. The following graph is a possible projection of this scenario. I've marked-to-market the orange area to 0 as exit strategies (cashing out) is often harder to building a successful business.
By comparison, the typical investing plan (for the minority who even makes such plans) is often the following. Save 10% of your salary for 40 years in a target retirement fund that becomes more conservative over time. Then the next 30 years, spend 4% of your portfolio until the money runs out at the end of your life.
I don't know whether I will achieve the goals I've outlined across various entries I've written -- after all, the future is
unknown. However, making projections at least gives me a
guideline to aim for and anything that improves my odds to reaching my goals, I'll take.
(Filed in investing)
Expectations versus reality
Posted by Mossy
February 23, 2010 9:04 AM
Annualized Returns
After pulling my numbers together, I have:
Nominal Real CPI Return Return --------------------------------------- 1996 2.93% 22.70% 19.77% 1997 2.34% 16.80% 14.46% 1998 1.55% 14.90% 13.35% 1999 2.19% 20.70% 18.51% 2000 3.38% -1.30% -4.68% 2001 2.83% -4.80% -7.63% 2002 1.59% -19.80% -21.39% 2003 2.27% 27.10% 24.83% 2004 2.68% 9.80% 7.12% 2005 3.39% 6.70% 3.31% 2006 3.24% 16.90% 13.66% 2007 2.85% 4.00% 1.15% 2008 3.86% -17.50% -21.36% 2009 2.49% 16.10% 13.61% --------------------------------------- 2.68% 7.05% 4.32%At 7.05% nominal and 4.32% real, I appear to be on track. Considering all the articles about the "lost decade" of investing, I'm not too unhappy with my returns. Like the over-used sports cliche, it is what it is.
Dollar Returns
Unfortunately, since I am in the portfolio build-up phase, the great returns of 1996 to 1999 only worked on a small amount of money. The following is a graph of my dollar returns and it looks far different from the pure annualized numbers.
The numbers look pretty exciting during 2008 and 2009 as the amplitude is 3.5-4 times larger than any other movement in the previous 12 years. Without any further context, the first reaction would be "heart attack".
Contributions
After stacking on my contributions, the graph changes dramatically.
The above picture explains why I will probably be able to retire on a 0% real return. My savings rate simply overwhelms the market gains/losses. Even in the turbulent 2008 (up to March 2009) when the most equity markets dropped 50%, my net worth went up anyways. Combined with the 2009 rebound, the line seems to go up a cliff.
Near Future Projections
With the market position of my company, I'm confident I can keep my savings rate high for the next 10 years. I doubt I will stay in China forever so if I factor the extra increase in living expenses, the coming 2 decades might look like so:
The above picture tells me if I keep my my savings rate up, what the market does will not materially affect me for another 10 years or longer. Sometime in the mid 2020's is when market gains might become a significant part of my net worth.
Business Equity
All the above graphs though only show my liquid/semi-liquid portfolio. If I added my business equity using the conservative formula of 1X annual sales, the picture changes even more.
The estimate of my business equity appear twice the size of my investment contributions. By comparison, the green sliver representing market returns now look like statistical noise. What this picture tells me is to concentrate on my business ventures. Passive investments work nicely to produce income for retirement but during the prime of a working career, improving attitude, ideas, skills, experience, network, etc. to reach for the brass ring seem far more important.
Far Future Projections
In my last entry, I mentioned my goals for the future is to save enough where I spend just my contributions in retirement and leave any returns for my heirs. The following graph is a possible projection of this scenario. I've marked-to-market the orange area to 0 as exit strategies (cashing out) is often harder to building a successful business.
By comparison, the typical investing plan (for the minority who even makes such plans) is often the following. Save 10% of your salary for 40 years in a target retirement fund that becomes more conservative over time. Then the next 30 years, spend 4% of your portfolio until the money runs out at the end of your life.
I don't know whether I will achieve the goals I've outlined across various entries I've written -- after all, the future is unknown. However, making projections at least gives me a guideline to aim for and anything that improves my odds to reaching my goals, I'll take.
(Filed in investing)
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