Wednesday, September 12, 2012

Portfolio Returns - Part II

In Portfolio Returns - Part I I explained how to use Microsoft Excel to calculate your internal rate of return using the built in XIRR function and gave my returns through close on September 9, 2012.  Today I'm going to compare my returns versus investing everything in the SPY ETF.

I was able to compile all the data and crunch the numbers to compare my total returns vs the SPY ETF that tracks the S&P 500.  I gathered data from Yahoo! Finance's Historical Prices for the SPY.  The historical prices gives the open, high, low, close & adj. close prices corresponding to each date.  The adjusted close price is the price adjusted for all dividends and stock splits.  It's an easier way to compare total returns without having to gather data for all dividends and closing prices.  Yahoo! Help has a good explanation and example calculations of how they calculate the adjusted close price.  Now I know that Yahoo! Finance doesn't always have the best information but it's the best that I can get to work with.  All returns are calculated through close on September 9, 2012 to be consistent with my previous post.

In order to calculate the returns I used the same cash flows and assumed that I invested them the day they transferred in SPY at the adjusted close price on the date of the transfer.  This works out fairly well for my 401k, Roth IRA 1 and Rollover IRA since they were invested in mutual funds.  However for my Roth IRA 2 and FI portfolio it doesn't work as well since I'm currently sitting on 32% and 13% cash respectively.

Annualized Portfolio Returns
Portfolio Annualized Return Annualized Return if SPY
Rollover IRA 18.79% 18.81%
Roth IRA 1 11.16% 11.73%
401K 11.27% 15.22%
Roth IRA 2 6.14% 21.44%
FI Portfolio 32.42% 29.78%

Considering my Rollover IRA and Roth IRA 1 both have a bond portion I think it's pretty good that the returns are almost the same.  Add on top of that my expense ratios are higher than the SPY's tiny expense ratio and that probably explains the differences.

For my 401k I am counting the employer match and profit sharing as if they were regular contributions to the portfolio.  If I didn't do it this way the returns would be much higher although it would be higher for both.  My actual 401k return is lagging the SPY return due to it being much more diversified.  I am currently invested in a Bond Fund Index, S&P 500 Index, Large Cap Value, Non-US Equity and a US Mid-Cap Equity fund.  The US stock market has given much better returns over my investment period which is leading to the outperformance for the SPY.  Like most everything else when it comes to investing, a reversion to the mean will come at some point.  Once the global economy is on better footing I expect my 401k to pass the SPY due to the Non-US Equity Fund making up lost ground.  Currently, that is 27% of my 401k.

I fully expected the Roth IRA 2 to lag behind the SPY but I was not expecting it to be by this much.  A 15% underperformance is a little disheartening.  As I showed in my other post, a big drag on my returns here is the 2 BAC Jan 2014 calls dropping in value.  The return if I had just left money in cash would be 14.51% which is still showing a 7% underperformance.

My FI portfolio is the lone outperformer thus far.  With a 2.6% outperformance I'm doing quite well although not as well as I expected since my ESPP shares are included in this calculation.  Since I purchase those shares at a 15% discount that means the portfolio overall is lagging the SPY which I didn't expect.  Some of that is due to the loss I took on SORL and the rest can probably be attributed to commission and that in order to have my portfolio spreadsheet to match my brokerage value I have to assign negative values to the options that are held, although that doesn't really make sense to me.  My actual portfolio value is about $300 higher giving a 34.48% return.  But I'll use the value that my brokerage calculates in order to be consistent between the two.

The SPY annualized return doesn't take into account commissions.  This affects my Roth IRA 2 and my FI portfolio.  Another explanation for the differences in these 2 accounts is that I have assumed for the SPY situation that the cash is invested the day that it is transferred to the account as opposed to sitting as cash as mentioned earlier.  The fact that the outperformance of my FI Portfolio vs the SPY isn't bigger shows the importance of getting capital invested due to the effects of compounding.  It'll be interesting to see how the performance values change in a down market.

For some reason the LOOKUP function in Excel wasn't working properly.  Once I get that figured out I will post this spreadsheet along with a link to the historical prices of the SPY so you can see how you stand.

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