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The couple said their returns averaged 5% for the last three years...
Old 01-13-2016, 09:00 AM   #1
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The couple said their returns averaged 5% for the last three years...

Another Saturday morning and the "crash proof retirement show" is on my radio. I am always amazed how little they say in a one hour show. They came to a segment where a couple came on the show to say they had just had their annual review and they averaged 5%. I had a sense that was pretty terrible when compared to the market.

So put another way:
Value of a dollar end of (rounded to the nearest penny) 5% growth
Year 1 $1.05
Year 2. $1.10
Year 3 $1.16

Then I looked up the S&P returns for the last three years and calculated the year end balances.
2013 32.39% $1.32
2014 13.69%. $1.50
2015 1.39% $1.52

So if my simple math is correct after three years - the crash proof retirement was down by 20%.
In my mind A high price price for security. Yet they were touting the returns?

Am I off here?


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Old 01-13-2016, 09:11 AM   #2
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Your math is fine; it's just hard to compare their returns with the S&P when you don't know their mix of investments. Bonds, a recommended component of any portfolio when you're in your 40s and 50s, can drag the yield down. I'm happy to say, though, that while my returns weren't as great as the S&P because I do have bonds, they were a heck of a lot better than 5% in 2013 and 2014.
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Old 01-13-2016, 09:50 AM   #3
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Originally Posted by rayinpenn View Post
Another Saturday morning and the "crash proof retirement show" is on my radio.
If this radio station is like one I listen to, Saturday is largely devoted to shows that are little more than infomercials for local businesses (an FA, a landscaping/nursery company, local auto repair shop, a gun shop, etc). They take call-ins and try to sell their products. I do admit to listening to the FA just to see how crummy and self-serving the advice can be, and to hear the wild questions/assumptions of the callers. But it's not a healthy hobby, and I usually try to find more redeeming shows when I can.
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Old 01-13-2016, 09:51 AM   #4
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I just looked at my own numbers over that timeframe, and while not so hot, they were better than that "crash proof" scenario. Mine were roughly:

2013 23% $1.23
2014 5.6%. $1.30
2015 2.8% $1.34

I under-performed a bit in 2013 because I started cashing out to pay down my mortgage. I did a lot of that early in the year, so I missed out on a lot of the potential gains that came on later in the year.

In 2014, I think it was some overseas and energy stuff that kept me down.
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Old 01-13-2016, 10:18 AM   #5
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You don't say how many years the "average of 5%" are involved.

Average of 5% since 2009 would be poor. Average of 5% over the past year would be great! Over 10 years, including the 2008-09 years...maybe not so bad.
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Old 01-13-2016, 10:34 AM   #6
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Vanguard.com has a nice set of benchmark returns which it updates periodically. https://personal.vanguard.com/us/fun...nchmarkreturns

Consult the benchmark you think your portfolio is close to in the left-most column, then compare to the returns in the other columns.

If one jumps down to the "target retirement" benchmarks, let's just say that a 5% annualized return over the past 3 years sucks.
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Old 01-13-2016, 10:49 AM   #7
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Not enough info...but

If I only made 5% in 2013 I wouldn't be here!
If any of us made 5% last year we'd be much happier.
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Old 01-13-2016, 11:33 AM   #8
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1) The crash proof investments are insurance contracts I believe.
- the draw is you never lose principle.
2) they said our returns averaged 5% over the last 3 years.

Based on what I see that is terrible.



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Old 01-13-2016, 12:52 PM   #9
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Wellesely averaged 6.12% a year for the past three years. What's the big deal about 5% a year?

https://personal.vanguard.com/us/fun...tExt=INT#tab=1
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Old 01-13-2016, 01:43 PM   #10
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First, unless these retirees are 100% stocks and few retirees would be... you need to adjust those S&P returns to be comparable. My 60/34/6 portfolio has returned ~5.75% annually over the last 3 years so their 5% seems plausible depending on what their AA is.
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Old 01-13-2016, 01:52 PM   #11
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FWIW, my 3-year return, as of 12/31/15 across all my fidelity accounts, was 9.61%. When the S&P moves 24%+, it's not that hard.

5% might not be that bad for a mixed portfolio. My mixed return comparison says 6.5%.
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Old 01-13-2016, 02:18 PM   #12
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Quote:
Originally Posted by rayinpenn View Post
1) The crash proof investments are insurance contracts I believe.
- the draw is you never lose principle.
2) they said our returns averaged 5% over the last 3 years.

Based on what I see that is terrible. ...
That 5% return on insurance contracts might be based on account values, but probably doesn't include surrender charges that would be incurred in getting back to cash... if the contracts are only 3 years old then i suspect that the return based on surrender values would be much lower (or perhaps even negative).
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Old 01-13-2016, 02:32 PM   #13
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I'm 100% equities, though only 11% SP500, and only got 8% per year the last 3 years.

Add in some bonds returning 0-3% and 5% isn't too surprising. Especially since they might have 1-2% per annum fees between crappy funds, churning, and AUM fees.
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Old 01-13-2016, 03:03 PM   #14
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Add in some bonds returning 0-3% and 5% isn't too surprising. Especially since they might have 1-2% per annum fees between crappy funds, churning, and AUM fees.
Event the Target Retirement Income fund which has plenty of bonds averaged better than 5% a year over the past 3 years.

Your point about expenses is well-taken.
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Old 01-14-2016, 04:37 AM   #15
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That 5% return on insurance contracts might be based on account values, but probably doesn't include surrender charges that would be incurred in getting back to cash... if the contracts are only 3 years old then i suspect that the return based on surrender values would be much lower (or perhaps even negative).
most annuity's with guarantee's or bonus bucks have two values .

the annuitization value which includes the guarantees and bonus bucks , this is money that you can never take or leave to heirs . it is only used for a base if you annuuitize .

the other account or growth account as it is called is your actual value if you die or take the money .


most annuity's charge expenses on the annuity account balance so you pay fees on a balance you can never own .

the additional money added to that annuitization account many times only lets you see 1/10 of 1% a year of it as an increase in draw .
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Old 01-16-2016, 07:59 PM   #16
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Event the Target Retirement Income fund which has plenty of bonds averaged better than 5% a year over the past 3 years.

Your point about expenses is well-taken.
At Yahoo Finance I see:

2013: +5.87%
2014: 5.54%
2015: -.17%

=(1.0587*1.0554*.9983)^.333 = 3.7% geometric avg annual returns.

Depending on the particular asset allocation, 5% seems reasonable (and great if you're heavily into fixed income investments).
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