Annual rate of return on 403B

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date Annual rate of return on 403B Prion 01-10-2007  Re: Annual rate of return on 403B Elle 01-10-2007  Re: Annual rate of return on 403B Will Trice 01-11-2007  Re: Annual rate of return on 403B Elle 01-11-2007  Re: Annual rate of return on 403B wyu 01-11-2007  Re: Annual rate of return on 403B Elle 01-11-2007  Re: Annual rate of return on 403B wyu 01-12-2007  Re: Annual rate of return on 403B Elle 01-12-2007  Re: Annual rate of return on 403B PeterL 01-10-2007
Posted by Prion on January 10, 2007, 4:25 pm I currently contribute to a 403B plan provided by my company. A total of 14% of my monthly pay is contributed each month 8% by my employer and 6% by me. I am 25% in emerging markets,25% latin america, 25% pacific basin and 25% china region. Through Fidelity. This has resulted in a 37% rate of return last year, and the previous year was <25% I have never been less than 25% in the past 4 years that I have used this combination. Do you see any problem with me continuing this investment protocol? I realize I am not in any way diversified, but I watch the market every day and can easily shift funds if I saw a serious swing in the market. It is very hard to diversify when one realizes this kind of return annualy, compared to a diversified portfolio that may result in only a 12-15% return. I am relatively young and was on the tail end of the dot com implosion when I initially started my retirement account, therefore I didn't lose that much, I have a much more considerable amount to lose this time if asia and latin america tank but I think I am able to be more proactive if a trend were to develop. Any help would be appreciated. Posted by Elle on January 10, 2007, 4:47 pm > I am 25% in emerging markets,25% latin america, 25% > pacific basin and > 25% china region. Through Fidelity. > > This has resulted in a 37% rate of return last year, and > the previous > year was <25% I have never been less than 25% in the past > 4 years that > I have used this combination. Do you see any problem > with me > continuing this investment protocol? I realize I am not > in any way > diversified, but I watch the market every day and can > easily shift > funds if I saw a serious swing in the market. The last sentence above is somewhat oxymoronic. Do you understand and can you state what the purpose of diversification is? If you do understand this, then you will understand that, historically speaking, your current allocation has not been optimal for returns. For ideas on allocations, try some of the free online asset allocation calculators linked at http://home.earthlink.net/~elle_navorski/id8.html . Then ask more questions as needed. Certainly keep lurking here and at other online fora. Remember, chasing short term returns, as you seem to be proposing, is a proven losing strategy for long term investing. > It is very hard to diversify when one realizes this kind > of return > annualy, compared to a diversified portfolio that may > result in only a > 12-15% return. You spoke of the dotcom bust. Prior to the bust, you do realize that returns were well north of 12-15%, too, right? What lesson should one take from this? Posted by Will Trice on January 11, 2007, 7:38 pm Elle wrote: > >>I am 25% in emerging markets,25% latin america, 25% >>pacific basin and >>25% china region. Through Fidelity. > then you will > understand that, historically speaking, your current > allocation has not been optimal for returns. Are you sure about this? Have you looked at historical data? If I take his allocation, rebalance every year, then $1 would become $2.44 (my period here is March 1996 - March 2006, that's as far back as the data for FHKCX - his China fund - goes on Yahoo, it was established in Nov. 1, 1995, so I couldn't go much further back anyway even if I had the data). > For ideas on allocations, try some of the free online asset > allocation calculators linked at > http://home.earthlink.net/~elle_navorski/id8.html If I use the most aggressive asset allocation from the first link you suggest at the site above, it gives me a 40% large-cap, 20% small-cap, 20% bond and 20% foreign allocation. Using the S&P 500, Russell 2000, RPSIX, and FWWFX for these, respectively, then in the same time period this allocation would give a result of $2.22 over the same period (rebalancing once per year). This holds when starting in any other month as well. It seems that your tools don't give optimal allocations either. I'm not suggesting that the OP has a good allocation, but it wasn't a bad allocation either (return-wise). -Will Posted by Elle on January 11, 2007, 8:03 pm > Elle wrote: >> >>>I am 25% in emerging markets,25% latin america, 25% >>>pacific basin and >>>25% china region. Through Fidelity. > >> then you will understand that, historically speaking, >> your current allocation has not been optimal for returns. > > Are you sure about this? I have never seen anyone recommend strictly emerging market and international stocks for one's portfolio. I think it's a fair assumption that this is based on historical returns over several decades, which is the OP's timeframe. (He said he was "relatively young." You went back ten years with your examination of some international etc. funds. IMO this is not enough history. Asset allocation tools use many more years of data. >> For ideas on allocations, try some of the free online >> asset allocation calculators linked at >> http://home.earthlink.net/~elle_navorski/id8.html > > If I use the most aggressive asset allocation from the > first link you suggest at the site above, it gives me a > 40% large-cap, 20% small-cap, 20% bond and 20% foreign > allocation. Using the S&P 500, Russell 2000, RPSIX, and > FWWFX for these, respectively, then in the same time > period this allocation would give a result of $2.22 over > the same period (rebalancing once per year). This holds > when starting in any other month as well. It seems that > your tools don't give optimal allocations either. Your reasoning does not make sense to me, because it uses 20/20 hindsight. Since REITs have done way better than the S&P 500 during XYZ period, telling people to buy an S&P 500 index fund is also poor advice. Right? Nope. Also, note that I said the OP should use the tools /for ideas/. I do not write casually, Will. I try to be careful in what I say. If I mess up, I'll admit it. > I'm not suggesting that the OP has a good allocation, but > it wasn't a bad allocation either (return-wise). We need to look forward. Posted by on January 11, 2007, 11:08 pm I'm feeling too lazy right now to google up the backup data but I have read before that Emerging Markets is the top return sector over extended periods of time. Obviously, it's way more volatile so the typical 10 year horizon for S&P500 is not long enough. You may be looking at 20-30 years as a reasonable timeframe for a 100% Emerging Market portfolio. Elle wrote: > I have never seen anyone recommend strictly emerging market > and international stocks for one's portfolio. I think it's a > fair assumption that this is based on historical returns > over several decades, which is the OP's timeframe. (He said > he was "relatively young." Similar Threads Posted Formula for FV of non-interest-bearing account given annual contributions increase at x% compounded rate February 2, 2007, 1:25 pm higher rate of return December 5, 2007, 6:36 am Rate of return since Aug of 1999 April 26, 2008, 7:57 pm Social Security Rate of Return January 29, 2007, 5:47 pm Calculating rate of return from a stream of investments September 3, 2008, 5:19 pm Thread Closed (was: Social Security Rate of Return) February 2, 2007, 8:48 am Convert 403b to Roth 403b June 29, 2008, 6:51 am graph net worth - CD return vs S&P index return September 25, 2008, 8:46 pm Annual Gift tax exclusion March 8, 2007, 11:45 am free "annual" credit reports... October 22, 2006, 7:09 am