Index Investing First Year Results

It has been a little over a year since I decided to take control of my investments through passive investing.  As mentioned in my first post, I got serious about my financial future after I realized how much the target date fund in my 401k had underperformed the S&P 500 since I started at my company back in 2013.  It was a bit trial and error at the beginning figuring out which index funds to invest in but eventually I landed on a mix of large, mid, and small cap stocks along with REITs and bonds that I was happy with.  Also, I finally consolidated all of my old 401k’s into IRAs at my brokerage.  And the results are in…

  • Jan 1, 2017 Balance: $158,659.48
  • Dec 31, 2017 Balance: $234,975.18
  • Total 2017 Contributions (including employer): $36,027.77
  • Allocation: 8-10% bonds depending on the month, delta stocks-I don’t hold much cash
  • 2017 Total Return: 20.69%
  • Old Target Date Fund Return including fees: 22.21%

Okay-ugh…I missed out on 1.52% return had I just invested in my old target date fund.  These are the main areas in which I underperformed:

  1. Bonds: The target date fund has a lower allocation to bonds-it was 5-6% throughout the year vs. my 8-10%
  2. REITS:  Being a Burton Malkiel devotee I had a 10% allocation to US REITs last year which really underperformed due to the decline of retail and US malls…  My REIT fund returned only 3.72% last year.
  3. Foreign Stocks:  I wasn’t investing much in foreign stocks at the beginning of the year.  In later months I increased my allocation to 10% Total International and 10% Emerging Markets but by that time I’d missed out on the 25.29% gain of EAFE and 37.33% Emerging Market. 

So what did I learn?  Though I underperformed it wasn’t a total blood bath.  I can do a reasonably effective job managing my own investments.  Diversifying by having a mix of asset classes means that when some underperform (REITs) this can be countered by others like my NASDAQ and my Information Technology ETF.  And it is important to invest beyond US borders-especially if, as the experts have been saying of late, the US market is overvalued.

I am incredibly tempted to sell my REITs.  But as a buy and hold investor I know that assets that underperform in one period tend to outperform in the next.  Now we get to the behavioral aspects of investing.  The real reason that I didn’t invest in foreign stocks is that I looked at their performance since the financial crisis, saw the stagnation, and decided it wasn’t worth the risk.  

Google Finance-All World Excluding US Index Performance
Google Finance-Emerging Markets Index Historical Performance 


And then of course 2017 began the synchronized world-wide recovery and foreign stocks surged.  What did I just say about underperformance in prior periods?  While we don’t know what will happen tomorrow, 6 months, 1 year, or even 10 years from now-in general over the long term stocks go up in value.  Also, because they have stagnated, underperforming indices should be viewed as a buying opportunity-buy low and sell high.

The other big thing I did was increase my savings.  In 2016, I saved only $16k not quite maxing out the $18k allowed by the IRS-in 2017 I maxed out and plan to do so this year.  Additionally, I contributed an additional $9k to my investment account and liquidated the shares I have with my employer-see my note on purchasing employer stock.  The savings was what really allowed me to go boost my balance-and honestly I didn’t have to make much change to my lifestyle.  It was pretty ridiculous how much I was spending on frivolous purchases.


2017 was a good year for my financial health.  I learned a great deal about managing my own finances, boosted my savings, and got a satisfactory return on my investment. Here’s hoping for an equally productive 2018!

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