Annual Rate of Return (long-term)

**peterson82** · 08-25-2008, 01:15 PM

I was playing around with numbers, and was shocked at how much 1% increase in an annual rate of return will affected the balance of one's investment after 30+ years. (Which is probably pretty obvious to you all!)

My question is what is your long-term average for annual rate of return, and how much did switching to "trading" increase that rate?

**Miss Piggy** · 08-25-2008, 02:56 PM

peterson,
You need to familiarize yourself with all things "rokid."
Long Term Tally

**rokid** · 08-26-2008, 03:29 AM

Originally Posted by peterson82

My question is what is your long-term average for annual rate of return, and how much did switching to "trading" increase that rate?

Over the past four years, the TSPtalk traders, as a group, have done worse than the L2040. This result is in line with the expectations of financial theory.

If you examine the attached Long Term Tallies from 2-4 years, you'll notice fewer people being tracked over time and the L2040 moving toward the top. Most of the traders who started four years ago have since left the tracker.

Consequently, trading seems riskier than a well diversified, passive approach, e.g. one of the L Funds. Some traders have achieved much better than average returns and some have suffered much worse than average returns.

Are the traders good or lucky? Again, financial theory would suggest lucky. However, I'd be the last to claim Show-me, who has led the tally for the last four years, is not skilled!

Finally, it is unlikely that the L2040 will ever achieve a yearly return higher than the best trader. However, it is also just as unlikely that it will ever be ranked last.

Good luck.-----Jim

**peterson82** · 08-26-2008, 01:00 PM

It seems like if one were to DCA their investment into one of the riskier funds they would be in the negative because of the bad market. The question is, when the market rebounds does taking that hit pay-off in the end?

**rokid** · 08-26-2008, 01:56 PM

Originally Posted by peterson82

It seems like if one were to DCA their investment into one of the riskier funds they would be in the negative because of the bad market. The question is, when the market rebounds does taking that hit pay-off in the end?

You can also take the perspective that stocks are currently cheap. When they rebound (1-3 years?), they'll pay off. That's what they've done in the past. However, I'd DCA into all three stock funds, not just one. In fact, I'm currently DCAing into the Vanguard REITS and Emerging Markets funds which are both doing terrible this year.

Historically, you'll just do a little better than inflation investing in the G Fund. The F Fund has done better. However, typically, a passive, diversified investor uses fixed income (G&F) to dampen risk and equities (C, S, &I) to make money.----Jim

**peterson82** · 08-26-2008, 04:36 PM

Yeah, I wish i had some money to invest because the market prices are low (Of course, I probably would have lost the money if I started earlier with this market).

I will keep track of my rate of return every year, for comparisons and for general reference. If someone 20 years from now asks the same question I did, I'll have a nice long detailed answer. (Hopefully the numbers are at least above inflation!)

Oh yeah, those reports are nice, thank you. If some of the people at the top kept up their success for years and years they will have made hundreds of thousands more than just an L-fund. That is quite amazing!

**tsptalk** · 08-26-2008, 06:32 PM

Originally Posted by rokid

Over the past four years, the TSPtalk traders, as a group, have done worse than the L2040.

This is true, but during bear markets, these numbers "should" change. The L2040 will not take shelter during any signifcant down turn. The only way to beat the indices or a fund like the L-fund, is to be out of stocks when they go down.

This is not to say timing is easy. Beating an index fund is tough during a sustained bull market. It's what you can do in a bear that should make the difference, and since 2008 is the first bear we've had during your study, I don't think it is a true representation of a long term projection of what timing can do - although I do understand that you state studies that show otherwise.

That said, my weakness has been that I have been overly bearish when there were very good buying opps. So yes, it is tough, but if this bear market goes on for any length of time I believe your numbers will swing. It's just tough for me to give over control of my account to the swings of the market.