February 4, 2010

My Roth IRA Performance Compared to Benchmarks

From November 2008 to February 2nd, 2010 my Roth IRA is up 34.6%.    I'm including the $10,000 that I put in for calendar years 2008 and 2009 but excluding the $5000 that I just put in for 2010.    +34% is a very good increase for a year and a couple months.   But the market as a whole has been up substantially in 2009.  Theres a saying that a rising tide raises all boats.   This leaves me wondering if my +34% increase is any good or if I might have done better simply throwing my money into index funds.    I decided I should compare my performance to the standard stock indexes and other investments to see how it stacks up.

What Benchmarks should I use?
I'm going to compare my performance to the standard stock indexes.   The S&P 500 is a standard for measurement of US stock market.   Its not the best index or the smartest investment but its a standard benchmark.  You can also look at the other major indexes like the NASDAQ and the Dow Jones Industrial average.   I'm also going to compare against a very simple portfolio of 3 index funds.  I've talked about Lazy porfolio investing before.  Its a simple way to get a more diversified portfolio with a few index funds.  One of the Lazy portfolios that I like is the 'Margaritaville' which consists of 33% each in Inflation index bond index, US stock market and foreign stock markets.   You can get that by buying Vanguard funds.  VIPSX, VGTSX and VTSMX.  Its diversified and simple.

If I take the S&P 500, NASDAQ, Dow Jones and  the Margaritaville portfolio and then figure their performance for the period Nov. 2008 to Feb. 2010 I can use them as my benchmarks to see how well my Roth IRA performance stacks up. 

Performance from Nov, 2008 to Feb. 2010:
My Roth IRA = 34.6%
S&P 500 =15.9%
Margaritaville = 20.6%
Dow Jones Industrial = 10.3%
NASDAQ = 27%

The performance figures above are adjusted to include dividend payments or capital distributions.   My Roth IRA came out ahead in this period compared to all the benchmarks. 

What if I'd thrown my money into a mutual fund?   
Comparing my performance to mutual funds is not too straight forward.  With the Yahoo mutual fund screener I can look for the performance of funds over the past year.   They measure the 1 year performance going back 12 months from today.   So that would be from Feb. 2nd 2009 to Feb 2nd 2010.    Back in Feb 2 2009 my Roth IRA was valued at about $7700.   So my Roth IRA balance has gone up 72% in the past 12 month period.   Using the screener I can find funds that have gone up 50% or more in the past year.   Only 1850 funds have gone up 50% or more.   There are 19,550 funds total in their database.   So the performance of my Roth IRA for the past 12 period has been better than 90% of all mutual funds.   But that is comparing my Roth IRA performance to safe treasury or bond funds that you shouldn't expect high growth from.   If you narrow the screen down to just US stock funds then 670 funds are up 50% or more out of 8400.  That is less than 8%.  Either way I'm beating over 90% of the mutual funds.

 The 34% return I got in my Roth IRA from Nov. 2008 to Feb. 2010 has been better than indexes or most mutual funds.    This is confirmation that I did in fact out perform the market.

Of course this is just 1 years performance.   This does not mean I'm especially skilled at stock picking.   I might have totally lucked out in this past year and stumbled randomly into a few stocks that just happened to perform extremely well recently.    Who knows, maybe next year the S&P500 and the Dow will beat my investments by 20%.

I'm not going to draw any conclusions on this other than the confirmation that my 34% is better than average and better than just going with an index. 

Disclaimer:   Nothing here should be viewed as investment advice in any way shape or form.

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