How are Your Stock Market Returns?
“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it. ” Warren Buffett
Updating our personal portfolio has fallen lower and lower on the priority list. Like many of you, I’ve piled a lot on my plate (I promise, no more stories about our epic move this summer ) and so I put off updating our personal assets. I have one account that is not a retirement account but a brokerage account at TD Ameritrade which contains both stocks and more recently ETFs. Over the past several years, I’ve moved to a more passive investing style after many years of stock picking. This transition entailed selling individual stocks (FDS, FDX, GRMN, LNTC) and replacing them with ETF’s (GWX, VBR, VWO, EFA, VNQ).
For a complete look at our personal asset allocation and holdings you can go to The Friedberg Family Portfolio.
While updating this investment account today, I became curious about the return I would have had, if I hung on to the stocks I sold over the last few years. I hoped that all the stocks I sold back in 2009 in order to harvest some losses and capture a gain, would be priced lower than when I sold them. That would have vindicated my decision to sell. After all, even though I was selling some of them to take the losses on my taxes, I would have held on had I believed they had more upward than downward potential.
Much to my dismay, three of the four stocks I sold were up 15 to 39% as I checked their prices on September 21, 2011. The fourth was about the same price as in 2009.
In order to further evaluate my decision, I reviewed the ETFs I bought with the proceeds. Fortunately, they were up significantly as well.
I decided not to spend the time doing a time and money weighted return calculation to determine whether I would have been better off holding the original stocks rather than buying the ETFs. A ballpark calculation that the replacement holdings went up as well took the sting out of the price increases of our sold stocks.
I’ve been investing for a long time. And, am a student of finance and Modern Portfolio Theory. This unscientific exercise reminded me of an historical fact; over long periods of time stocks go up. In the aggregate, patience and time in the market is rewarded. I’m not sure if I would have been better off holding the original portfolio or not, but I’m pleased that our stock holdings have risen these past two years, in spite of the recent downturn.
This exercise also reminded me that even though the market is currently swooning, putting funds in stocks which are selling at low valuations to their historical averages is when the real money is made. Invest at the top, and you will lose. Invest when others are fearful, and you will win in the long run. As Warren Buffett so aptly put, befriend the market gyrations in order to profit from them.
Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.
- Read a bit about investing, even if you’re not ready to start investing yet. (For starters, download my free eBook, 20 Minute Guide to Investing, located at the top right of the page).
- Prioritize some of your funds for stock market investing. There’s no time like the present. Just make sure to read, 10 Steps to Take Before Investing, first.
- Don’t be afraid of stock market volatility, as long as you don’t need your investing dollars for the next 5+ years, you will likely profit by investing now.
Hungry for More? Read What Other Bloggers are Writing About Investing
- Keep Investing Simple by PT Money
- Ethical Investing 101 by Prarie Eco Thrifter
- Beginning Investing with $50.00 by Buy Like Buffett
- How to Start Investing; for Newbie Investors at Money Help for Christians
- It’s Magic, Why Index Funds Come Out Ahead Every Time at Bank Nerd.ca
For a quick overview of Investing Strategies, pick up my FREE eBook; 20 Minute Guide to Investing (top right of the page). If you like what you’re reading, sign up for my RSS feed or email subscription and follow me on twitter so you get the word immediately.
Do you review your stock/mutual fund sales and evaluate your prior investment decisions?
image credit; edfredned