Chart of S&P 500
Remember the famous
phrase ‘Do As I Say and Not As I Do.’ This is easier said than done, especially
in the personal investment world. I am always tempted to chase the next Facebook stock, or try to catch a falling knife like a J.C. Penney stock thinking that there is value in bottom fishing. The only way to save myself in this case is that I always have some 'play money' allocated for such purpose, say no more than 2% of my portfolio. 98% of my portfolio is locked in ETFs or low cost mutual fund offered through the company. And as always the case, it tends to end up being a losing proposition. Cost of doing business, I guess. Overall, my net return is reduced by less than 1% a year. I always advise my clients not to do what I am doing. Well, some people like fast cars. I prefer the adrenaline of testing my knowledge and chase after stocks. If I found a winner, then I consider myself smart. If I lost money, I blame it on bad luck.
I keep doing this despite countless empirical studies by academicians and advice by great investors such as Warren Buffet and Jack Bogle (founder of the Vanguard low cost investment funds) that have proven the path to successful investing is by purchasing low cost index funds on a regular basis. You just can't beat the market. Systematic risk (or market risk) cannot be diversified. Buying individual stock,however, is more risky. Being a Finance professional with an MBA, CFP and a CMA, I still think I can beat the market.
Discipline yourself by staying the course during bad times and good times. Stop chasing last year’s winners. Do not try the impossible by trying to figure out what is value investing. No one can time the market successfully. If you had pulled out all your money when the stock market tanked 30% in 2008 and stayed in cash, you would have lost the opportunity of one of the greatest comebacks in stock market history. Nine years later, in 2017, the market is still achieving new highs. Many Financial Indolence (FI) success stories have also been achieved during this period.
I keep doing this despite countless empirical studies by academicians and advice by great investors such as Warren Buffet and Jack Bogle (founder of the Vanguard low cost investment funds) that have proven the path to successful investing is by purchasing low cost index funds on a regular basis. You just can't beat the market. Systematic risk (or market risk) cannot be diversified. Buying individual stock,however, is more risky. Being a Finance professional with an MBA, CFP and a CMA, I still think I can beat the market.
Discipline yourself by staying the course during bad times and good times. Stop chasing last year’s winners. Do not try the impossible by trying to figure out what is value investing. No one can time the market successfully. If you had pulled out all your money when the stock market tanked 30% in 2008 and stayed in cash, you would have lost the opportunity of one of the greatest comebacks in stock market history. Nine years later, in 2017, the market is still achieving new highs. Many Financial Indolence (FI) success stories have also been achieved during this period.
Assuming you have
$100,000 at the peak of the market in 2008, and your investment dropped 30%.
Also assume that you continue to put $20,000 in the market at the end of each
year using a 70% equity and 30% bond allocation.
You would have still almost doubled your money
in 10 years. If the starting year 2008 was not such as down year, I am almost
certain you would have doubled your money. A total investment of $280,000 over
10 years returned almost $200,000 for a grand total of $485,000. Average return
over the 10-year period was 7.7% using a 70% equity/30% bond allocation.
Instead of
constructing the table and researching for information which took me almost 45
minutes, I used my trusty HP 10b Financial Calculator to verify the results in
less than 1 minute.
$100,000 PV, $20,000
PMT each year for n=10 years, i=7.7%. FV (or future Value) = $495,000 .Darn
close!!!
Total Returns
|
Ending Balance
|
||||||
Year-end
|
Contribution
|
Equity
|
Bond
|
Equity
|
Bond
|
Total
|
Principal
|
2007
|
70,000
|
30,000
|
100,000
|
||||
2008
|
20,000
|
-36.6%
|
20.1%
|
44,415
|
36,030
|
80,445
|
100,000
|
2009
|
20,000
|
25.9%
|
-11.1%
|
73,568
|
37,356
|
110,924
|
120,000
|
2010
|
20000
|
14.8%
|
8.5%
|
100,545
|
47,024
|
147,570
|
140,000
|
2011
|
20,000
|
2.1%
|
16.0%
|
116,951
|
61,529
|
178,480
|
160,000
|
2012
|
20,000
|
15.9%
|
3.0%
|
151,759
|
69,535
|
221,294
|
180,000
|
2013
|
20,000
|
32.2%
|
-9.1%
|
219,050
|
68,661
|
287,712
|
200,000
|
2014
|
20,000
|
13.5%
|
10.8%
|
264,559
|
82,687
|
347,246
|
220,000
|
2015
|
20,000
|
1.4%
|
1.3%
|
282,403
|
89,823
|
372,225
|
240,000
|
2016
|
20,000
|
11.7%
|
0.7%
|
331,201
|
96,484
|
427,684
|
260,000
|
2017
|
10.0%
|
3.0%
|
379,721
|
105,558
|
485,279
|
280,000
|
|
Average
|
9.1%
|
4.3%
|
7.7%
|
||||
Notes:
|
|||||||
Total Returns on Equity based on S&P 500 ; includes
dividends
|
|||||||
Returns on bonds based on U.S. 10-year Treasuries
|
|||||||
Information on 2017 based on projection
|
|||||||
Assume no contribution at end of year 2017 - achieved Retirement
Goal !!!!!
|
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