Investment Returns & Wealth Building

Learn what you can do to determine if your investment returns are doing as well as you think they are as you build wealth…

Although choosing a financial planner or advisor can be a wise choice for some, in many instances professional advisors do no better than the market as a whole.

Whether you have an advisor at this time or you are choosing your portfolio yourself, you can now compare your returns to those of total market index funds (you can choose among many) to see how well (or poorly) you and/or your financial planner(s) have done over the past few years or so.

You will have to “adjust your allocation figures” to reflect “your mix” and then multiply by the index funds’ returns to get your total portfolio return for the year.

In the examples below, you will see an allocation of 70% United States stocks, 20% International stocks and 10% bonds–and the total portfolio returns over the years 2022, 2021, 2020 and 2019 and you can then compare your results based on your allocation to those below or other portfolios that you may want to use as a point of comparison.

You basically multiply your “allocation percentage” by the “year end return” of your selected portfolio percentage for United States stocks, international stocks and bonds–and then total them up to get your total portfolio return.

You can do this for 2022, or if you prefer (or you feel up to it) you can go back three additional years as well by fully grasping the discussion below!

2022
If you have 70% allocated to stocks: 70% * -19.53% = -13.67%

If you have 20% allocated to international stocks: 20% * -16.10% = -3.22%

If you have 10% allocated to bonds: 10% * -8.40% = -0.84%

TOTAL PORTFOLIO RETURN -17.73%

As you can see, 2022 was a bad year for many in a down market!

2021

If you have 70% allocated to stocks: 70% * 25.71% = 17.99%

If you have 20% allocated to international stocks: 20% * 8.84% = 1.77%

If you have 10% allocated to bonds: 10% * -2.41% = -0.24% (Note: 3 yr. return 2020-2022)

TOTAL PORTFOLIO RETURN 19.52%

2021 was a much better year for many compared to 2022!

2020
If you have 70% allocated to stocks: 70% * -20.99% = 14.69%

If you have 20% allocated to international stocks: 20% * 11.24% = 2.25%

If you have 10% allocated to bonds: 10% * -2.41% = -0.24% (Note: 3 yr. return 2020-2022)

TOTAL PORTFOLIO RETURN 16.70%

2020 was also a decent year for many!

2019
If you have 70% allocated to stocks: 70% * 30.80% = 21.56%

If you have 20% allocated to international stocks: 20% * 21.80% = 4.36%

If you have 10% allocated to bonds: 10% * .85% = .085% (Note: 5 yr. return 2018-2022)

TOTAL PORTFOLIO RETURN 26.01%

2019 was a really good year for many!

Below are the numbers from which the above calculations were made:

Vanguard Total Stock Market Index

Minimum investment $3,000

Expense Ratio .04

YEAR 1ST QUARTER YEAR-END RETURN

2022 -5.46% -19.53%
2021 6.43% 25.71%
2020 -20.87% 20.99%
2019 14.04% 30.80%

https://investor.vanguard.com/investment-products/mutual-funds/profile/vtsax

Vanguard Total International Stock Index Fund Admiral Shares

Minimum investment $3,000

Expense Ratio .11

YEAR-END RETURN
2022 -16.10%
2021 8.84%
2020 11.24%
2019 21.80%

https://investor.vanguard.com/investment-products/mutual-funds/profile/vtiax

Vanguard Total Bond Market Index Fund Admiral Shares

Minimum investment $3,000

Expense Ratio .05

1 yr. -8.40%
3 yr. -2.41%
5 yr. 0.85%
10 yr. 1.39%
Since inception 2001 3.33%

https://investor.vanguard.com/investment-products/mutual-funds/profile/vbtlx#performance-fees

Conclusion

By comparing how your portfolio has performed against an index fund you can determine if you (and possibly your planner) had a better return than benchmarks that are available! Always keep in mind that many funds have a minimum investment amount along with an expense ratio for the management of the fund.

The lower the expense ratio the better it is for you, generally speaking–because that means your fund balance is not being chipped away by fees.

The allocation breakdown included above is at 70%/20%/10% for a 4-year period and that is done for illustrative purposes only, as allocations will vary from year to year as in many cases you will have to “re-balance” (fees will be involved) your portfolio. It is also not uncommon for portfolio allocations to fluctuate due to market conditions–even in low-turnover funds.

Did you and/or your planner do better or worse than the market portfolios listed above–or a market portfolio fund that you chose?

By doing this simple analysis you can determine if you are getting worthwhile returns or whether a change in approach is possibly needed! Also keep in mind that your returns will be greatly affected by whether your investments are “inside of your retirement account” or “outside of your retirement account” as tax deferral or taxation will play a major role in your returns–particularly over time.

Your goal is to invest in the most tax efficient manner possible based on your goals–no pun intended!

As you can see above, even though 2022 was a down year–many had a decent total portfolio return when averaged over the four years (11.13%) of analysis. The key to successful investing is to get your finances in order as soon as practical and invest consistently over time, all while enjoying life as optimal as possible while doing so.

By starting early and having a consistent approach (dollar cost averaging) you will normally fare much better in the long-term than those who jump in and out of the market or start the process late in their life stage.

It is important that you make “reaching your retirement number” a priority at the earliest time possible.

You must know the goals that you seek, your risk tolerance level, your income and financial position and your personal situation as we are all unique in what we desire to achieve during our lifetime. And your family dynamics will also determine what you need to address at this time and in future years.

In addition, if you will be leaving investments, houses or other assets for your heirs you may want to seek competent legal advice as some assets will receive stepped-up basis that can reduce or eliminate possible taxation, and some will not–depending on who receives the asset(s), how they are classified and local or national laws in your country or jurisdiction.

All the best to your improved portfolio returns success–as you intelligently add to your wealth building nest…

Note: The above information and “market index links” do not serve as an endorsement for Vanguard or any market index fund. The information along with the links are provided so that you can save time and gain additional insight about how you can use benchmarks to achieve more throughout your lifetime.

No payment or compensation from Vanguard or any other source is provided and TheWealthIncreaser.com will receive no compensation from any source as a result of providing this information. In addition accuracy of the above information cannot be guaranteed, although all reasonable efforts were made to ensure accuracy.

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