Rate of return since Aug of 1999

I looked up the returns of the S&P at

added them above for the full years (note these returns seem to ignore dividends). At first blush, I'd say he's doing his job. He avoided the 40% loss most of us had in 2000-2002, and still had decent returns in the years since.I don't know how he has you invested so you saw such returns, reward follows risk, and conservative usually means a lower portion of stocks, which tends to lower overall returns. I'd be happy with the returns he showed you. Joe

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Not too bad for a "conservative" investment approach.

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Assuming he is calculating those numbers correctly, I'd say you're doing very well. Also, based on the numbers you've posted, I would guess that the 6.62% is not an "overall" return but rather an annualized return (6.62% per year).

Here is a comparison with the S&P 500 Total Return figures during that time frame. The Total Return figures includ reinvestment of dividends. I only have month-end figures, so the S&P 500 TR numbers only go through

3/31/2008:

Walter S&P500 TR Aug 99 to Dec 99 17.34% 11.18%

2000 4.33% -9.11% 2001 0.02% -11.88% 2002 -1.39% -22.10% 2003 15.91% 28.68% 2004 11.76% 10.88% 2005 6.28% 4.91% 2006 13.23% 15.79% 2007 2.30% 5.49% 1/1/2008 - 3/31/2008 -9.44%

Overall, the S&P500 TR index, from 8/1/1999-3/31/2008 showed a total return of 14.87% (and an annualized return of 1.61%)

According to the numbers you've posted, your total return from 8/1/1999 to

12/31/2007 is 92.6% with an annualized return of 8.09%. You only had one losing year, compared with three losing years for the S&P500 TR.

In addition, your volatility, calculated as the standard deviation of your returns, is less than that of the S&P 500. So it appears as if he has brought you better returns than the S&P500 TR Index with less risk.

I would say this return is well worth his fee. Your returns, before taxes, were 3-4 times that of the S&P500, over a similar time frame.

--ron

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Here is what the page looks like that he sends me: _______________________________________________________________________ Portfolio Internal Rate of Return

Annualized Portfolio Return from 08/16/99 to

04/24/08 = 6.62%

Portfolio Internal Rate of Return - This is the result of the calculation to solve for the rate of return which would maek an account from its intial value to its ending over a particular period of time. It measures portfolio growth over time and is directly comparable to other familiar returns such as that of a bank account. _______________________________________________________________________

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Yes, this is good. It means you got 6.62% per year, had your annual returns all been exactly the same. Joe

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1. Clearly the 6.62% represents an annualized return, as I suspected, and not a "total" return.
2. I don't know what "maek" means and don't understand that sentence. There's probably a typo in that sentence, and maybe a missing word or phrase, too.
3. Unless he is including your contributions as part of the growth, as I wrote before, these results are much better than that of the S&P500 Total REturn index, and with less volatility.
4. Your results are not as good as the S&P MidCap 400 and SmallCap 600 Total return indices but, again, the volatility of your returns is much better, in keeping with your desire for a more conservative position.

--ron

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Keep in mind one thing that almost everybody here accepts as an axiom: Past performance is no guarantee of future success! So your advisor's performance over the last 9 years is no guarantee of similar performance over the next 9 years.

Personally I would pay somebody 1% to manage my finances when hell freezes over.

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Hard to say, but the raw numbers look quite good. Some basis for comparison: in 2002, the S&P500 took a nosedive down by 22%. You hardly got touched. in 2003, the S&P500 shot up by about

30% - you captured half of that upside. Your overall average over that period of time was quite a bit better than an S&P500 index fund. At a quick guess, you could probably have gotten very close to the same performance with a simple portfolio made up of half a total-market index and half an investment-grade short to mid-term bond fund. Which, actually, is a remarkably decent portfolio. (The 50/50 portfolio I just described, implemented using Vanguard retail funds, rebalanced on Dec 31 each year, gets you an average return from 99-07 of 5.06%, with a 7.43% loss in '02 and losses of about a percent each in '00 and '01 -- way way tamer than the total market alone - and also slightly better returns during that period - the total stock market fund averaged 4.5% over those 9 years).

I just ran the numbers above (the two-fund, once/yr rebalanced portfolio) by copying a few numbers off of the Vanguard website into a spreadsheet. That help?

Sounds like an accurate rate to me.

Unforutnately the current financial philosophy is that everyone should now be wholely responsible for their retirement, medical, housing, college etc. They should save and invest for these, with some tax incentatives from Wahsington. Many of the investment calculators still use 8-12% annual return figures. Parts of the 1980s and 1990s were this good, but the 21st century is not shaping up as well.

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Sorry for the typos and omissions. Let's try that paragraph again:

Portfolio Internal Rate of Return - This is the result of the calculation to solve for the rate of return which would make an account grow from its initial value to its ending value over a particular period of time. It measures portfolio growth over time and is directly comparable to other familiar returns such as that of a bank account.

\Walter

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Thanks for the reality check so far.

I also would like some of your thoughts on the volatility of this portfolio. I went back to a quarterly billing statement from last year where the fee was based on the value of the account on October 17th 2007.

The account on Friday, April 24th, of last week when I asked him to give me some numbers, is worth 0.968 of the value it was worth on October 17th

2007. It lost about 3%.

Looking at a graph of the SP500 I see that it closed at 1541 on October 17, and bouncing between 1380 and 1400 during last Friday when he gave me the current results of the portfolio. If we say 1390/1541 it appears that the SP500 was down more by a factor of 0.902. So it appears that the portfolio is less volatile than the SP500.

And then there taxes. I know I paid a lot of taxes last year and maybe if that was being deducted from the portfolio things wouldn't look anywhere near as decent.

Once again, thank you for the comments. It has made me feel a bit better about paying the fp his fee.

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That sounds appropriate, and is what I would expect. Again, with the caveat that your advisor is not counting your contributions as gains (which he should NOT be).

My conclusions are the same.

--ron

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As you have noted, your volatility is less than that of the S&P 500.

Another way at looking at risk, or risk-adjusted return, is the Sharpe ratio.

Although it can be computed versus various indices, classicly the benchmark is a risk-free investment. For this purpose, I chose to use the return on a one-year Treasury as of the first of each year.

For 2000-2007, the Sharpe ratio of the S&P500 was -1; and yours was +49.

Here is some data (the Indices are total return indices):

Year Treas SP500 MD400 SC600 Slippman

2000 5.98% -9.11% 17.51% 11.80% 4.33% 2001 5.32% -11.88% -0.60% 6.54% 0.02% 2002 2.17% -22.10% -14.51% -14.63% -1.39% 2003 1.32% 28.68% 35.62% 38.79% 15.91% 2004 1.29% 10.88% 16.48% 22.65% 11.76% 2005 2.79% 4.91% 12.56% 7.68% 6.28% 2006 4.38% 15.79% 10.32% 15.12% 13.23% 2007 1.00% 5.49% 7.98% -0.30% 2.30%

Sharpe Ratios 2000-2007 SP500 MD400 SC600 Slippman

-1 51 49 49

All of my stock and cash equivalent investments are in Roth or Conventional IRA's, so I have not looked into methods of minimizing the tax burden on the returns.

--ron

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