Observations on "Actual Average ROI" poll

[Sam]

Hi all,

I think we have enough votes on the above mentioned poll to get clear (relatively) picture.

At this moment we have 38 votes (not counting the [I have no idea!]).

9.99% and below = 16 votes, 42%
10% to 15.99% = 13 votes, 34%
over 16% = 9 votes, 24%

I can see why the 4% SWR applies to the first group [9.99 and below].

For the second group [10 to 15.99%], the 4% SWR* does not make a whole lot of sense.* For this group, I think a better SWR should be "Actual ROI - 5%".* So for someone with a 12% ROI, 7% withdrawal rate is more sensible.

As for the third group [over 16%], all I can say is I wish I'm in your shoes.* Geez, you guy can withdraw 10% and your balance would still grow at an alarming rate.

What do you think?

Sam

[haha]

Quote:

Originally Posted by Sam Hi all, I think we have enough votes on the above mentioned poll to get clear (relatively) picture. At this moment we have 38 votes (not counting the [I have no idea!]). 9.99% and below = 16 votes, 42% 10% to 15.99% = 13 votes, 34% over 16% = 9 votes, 24% I can see why the 4% SWR applies to the first group [9.99 and below]. For the second group [10 to 15.99%], the 4% SWR* does not make a whole lot of sense.* For this group, I think a better SWR should be "Actual ROI - 5%".* So for someone with a 12% ROI, 7% withdrawal rate is more sensible. As for the third group [over 16%], all I can say is I wish I'm in your shoes.* Geez, you guy can withdraw 10% and your balance would still grow at an alarming rate. What do you think? Sam

Sam, thank you for the summary and your action points. What reasons cause you to make the suggestions that you make?

Ha

[azanon]

Sam has a daughter smart enough to attend a military academy, yet actually believes 9 out of 38 people pulled off greater than 16% ROI over 15 years. What gives?

Azanon

[wabmester]

Quote:

Originally Posted by Azanon Sam has a daughter smart enough to attend a military academy, yet actually believes 9 out of 38 people pulled off greater than 16% ROI over 15 years.* What gives?

Err, maybe that's 9 out of 38 ER's.* *Sort of like asking "how many of you have above-average IQs" at a Mensa meeting, isn't it?

Anyway, it would be foolish to adjust your withdrawal rate based on your historical returns.* * Personally, I switched to a much more conservative investment approach when I retired. Preservation of capital is more important to me now than high returns.

[eridanus]

Quote:

Originally Posted by Azanon Sam has a daughter smart enough to attend a military academy, yet actually believes 9 out of 38 people pulled off greater than 16% ROI over 15 years. What gives? Azanon

Maybe they're counting their contributions.

If every winning gambler actually won money, there would be no house in Vegas.

[azanon]

Quote:

Err, maybe that's 9 out of 38 ER's.* *Sort of like asking "how many of you have above-average IQs" at a Mensa meeting, isn't it?

Even amonst this crowd, i'm not buying that.* *Yes, i know we have some pretty spectaculiar people here, reflecting on the thread i read today regaring those who pulled off pre 40s ER, but despite that, I think that in many of those cases people need to go back and check their math.* Or maybe we had some real estate house flippers who actually worked to fix up a house and sold them for 30-50% profit or more.* *I personally would count that as just occupational profit, and not lump that into portfolio ROI.

I did go home and asked quicken to do a ROI for me since i started entering data (early 1996).* *It came up to 1.58% ROI, lol.* * * Assuming it's accurate, I guess that goes to show just how bad i got hurt from 2000-2002. I think if i were to break it down, i'd have modest returns from 96-00', slaughtered in 00-02, and nice returns since 2003. I was 19.67% ROI for 5/1/2005-4/30/2006.

[haha]

I have no idea what I have done overall during the interval specified, because I have been retired all that time, and withdrawing money. My book-keeping isn't sophisticated enough to break out my returns on all my accounts. However, I do have one account that had all it's inflows in the mid-seventies, and has had no outflows. My IRR on that account, over 30+ years is 12.6%.* This isn't one of several tax sheltered accounts chosen because it is the best. It is my one and only, and is of substantial size.

Ha

[wabmester]

It's not that we have spectacular investors here (although we might have a few). * It's that we have a lot of ER's here. * By definition, most retired *early* because they had above average returns and above average levels of saving.

If you did the same poll at Microsoft, you'd probably find that most employees there had an ROI above 16%. * Not because they're smart, but because they had concentrated positions in MSFT.

BTW, most investors have returns well below the returns of the S&P 500. * *I think one study indicated that the average return was around 3% because of the herd mentality of chasing hot investments.

[cute fuzzy bunny]

Theres also the plausibility that a lot of people who ER'ed did so off the internet boom, and may have enjoyed an unlikely to be repeated couple of years at triple digits. I had one year in excess of 300% and one in excess of 100%. Makes that 15 year average look good.

Not gonna happen the next 15 years though. Or probably the 15 after that. The rocket is spent and has been ejected. I'll stick with the 4% parachute on the way down instead of figuring that i'm going to grow another rocket...

I'm also going to venture that a lot of people really have NO idea of what the actual returns were and guessed. During a discussion not that long ago we discovered that a lot of people havent got a clue as to what their expense ratio's are. If you dont know what your investments are costing you, chances are you dont know what your actual returns are either...

[azanon]

Quote:

BTW, most investors have returns well below the returns of the S&P 500. * *I think one study indicated that the average return was around 3% because of the herd mentality of chasing hot investments.

I'm aware of this, and its a primary reason i'm calling foul. *I thought ER for many here had more to do with a successful business that was subsequently sold, rather than spectaculiar portfolio performance. *

I'm reminded of another article, that i believe was published on msn somewhere, which supported the position (and likely truth) that the amount of savings one has is predominately a factor of how much that person saved during their working life, not a factor of how good they are with picking the components of their portfolio.

Quote:

Theres also the plausibility that a lot of people who ER'ed did so off the internet boom, and may have enjoyed an unlikely to be repeated couple of years at triple digits. I had one year in excess of 300% and one in excess of 100%. Makes that 15 year average look good.

I read that only a select, small minority came away from the internet boom of the 90s with profits. Most continued their greed into the 2000+ fall.

[wabmester]

Quote:

Originally Posted by Azanon I thought ER for many here had more to do with a successful business that was subsequently sold, rather than spectaculiar portfolio performance. *

I don't know about *many*, but that was the case for me, and I included the sale of my business in calculating my ROI. I invested capital in my business, and got some nice capital gains. Does ROI only apply to passive investments?

[azanon]

Quote:

and I included the sale of my business in calculating my ROI.* *I invested capital in my business, and got some nice capital gains.* *Does ROI only apply to passive investments?

That's one of the things i suggested earlier that might explain the eronious poll responses.* I understood the poll question to be asking about passive portfolio investing.* *

Selling your business that you puts hrs upon hrs into, is just part of your profit for working, not portfolio performance.* * I get a paycheck, but as a business owner, part of your "payment" is equity in your business.* *

Of course you should make a LOT more than me if all i'm doing is spending 5 minutes on the internet at Twentieth Century to move money in an investment, then i do nothing for years and years.

[haha]

Quote:

Originally Posted by Azanon I'm reminded of another article, that i believe was published on msn somewhere, which supported the position (and likely truth) that the amount of savings one has is predominately a factor of how much that person saved during their working life, not a factor of how good they are with picking the components of their portfolio.

Overall, this would have to be true. Unusual success over a long period of time suggests an unusual personality. Unusual personalities are unusual. *

Ha

[wabmester]

Quote:

Originally Posted by Azanon Selling your business that you puts hrs upon hrs into, is just part of your profit for working, not portfolio performance.* * I get a paycheck, but as a business owner, part of your "payment" is equity in your business.* *

Semantics.

My company paid me a salary for the work I did, but my ROI on business equity was pretty much a function of how I invested my capital. Like I've said before, I prefer active investments to passive investments because it's the only way I have any control over my returns.

Believe me, nobody but insiders really have any good info on stock investments, and even insiders can't really predict how well their stock will do. So, I'd agree with you that making 16%+ pa on passive investments is hard to do, but whether by smarts or luck, many people got to retirement that way (as well as my way).

[Martha]

Quote:

Originally Posted by Cute Fuzzy Bunny The rocket is spent and has been ejected.* I'll stick with the 4% parachute on the way down instead of figuring that i'm going to grow another rocket... .

You win the bizzaro analogy of the day award.

[sgeeeee]

There are plenty of studies that have found that most investors don't have a clue what their return is or how to calculate it. The vast majority dramatically overestimate their returns. Common errors of those that bother to try to compute their returns include:

1) including new investments as returns,
2) using averages of each year's return to compute multi-year returns,
3) using published annual return rates of funds they are investing in,
4) remembering to include the gains and neglecting losses,
and others I don't recall at the moment.

I use microsoft Money to track my investments so I can compute returns over an arbitrary time period that I have entered in the database. Unfortunately, I switched versions of Money several years ago and was not able to transfer my previous data into the new version. (It's a long, ugly story). I have spreadsheet data going back to 1986, before I started using Money. But to get 15 years worth of ROI, I would have to mine three different databases. I didn't bother. I benchmark my performance to appropriate metrics, but I don't plan my spending based on past returns.

[retire@40]

ROI isn't really important.* Sure, having a high ROI helps grow your money, but it isn't as important as net worth growth.

You could have fantastic ROI for a number of years and not have any money at the end of those years if you LAYM.* You could have a low ROI, but have plenty of money if you LBYM and saved.

Tracking your net worth is far more important than tracking your ROI.

[wabmester]

Alright, to put these returns in context, here's a hypothetical investor named Joe.

In 1991, Joe had a $100K net worth and was making $100K/year. * He saved 15% of his income, and made 16% pa on his investments.

In 2006, Joe has a $1.8M net worth. * Joe figures he now has enough to ER, so he's a regular poster here.

These numbers look pretty good to me -- certainly above average, but I don't think they warrant the incredulity I'm seeing.

For the LBYM + index fund crowd, Joe would have to save 40% of his income to get the same net worth on 10% returns.

[scrinch]

...or have a spouse who makes $60K/year and saves all of that income...plus the 10% return.

Actually, I don't trust The numbers at all! - I don't think most people have a clue! - And a lot of them are Counting their contributions. Having invested for 25 years and contributed heavily all along, I think it's almost impossible to get a 'Real ROI' numnber.

I have been using Quicken for over 12 years, and the number they give me is phoney baloney!

I think the Poll shows that some people don't know their rate of return, and the others don't know that they don't know their rate of return!