Moolanomy Personal Finance

Beating the S&P 500, part 2

thumb

In “Beating the S&P 500, part 1,” I showed you my my investment performance that beaten the S&P 500. In this post, I will show you another way to look at these numbers and reveal how I managed the feat.

Here is a different look at the numbers

The following table shows how $10,000 invested in my 401k (column B), VFINX (column C), S&P 500 (column D), and IRA (column E) grew at different pace.

Beating the S&P500 Growth of $10,000

Chart updated October 1, 2007

Graphically,

Beat the S&P500 Chart

How did I do it?

You might be disappointed to learn that I did not have any investment secret to share. The performance you see here was the result of sacrifice, patience, and discipline to stick to a plan.

Here are the factors I believe contributed to the superior performance:

  • Regular Contributions — with 401(k) I invested more money every 2 weeks. This allowed me to buy more shares when the prices of the funds are low and less when the prices are high.
  • Aggressive Asset Allocation — since I have over 30 years, I decided to be aggressive with my investment — e.g., take on more risk. My current allocation is 20% Large Cap, 20% Mid Cap, 20% Small Cap, 30% International, 5% Company Stocks, and 5% REIT.
  • Regular Reallocation — I reallocated my funds (at no charge) when the asset allocation shifted by a few percentage points. This allowed me to shift money from good performing funds to buy more shares of poor performing funds. This basically helped me “buy low and sell high,” and at the same time reduced the downside risk.
  • Automatic Reinvestments — as you can see from “Introduction to CAGR,” the difference between S&P 500 with Dividend Yield (green line) and without (blue line) was dramatic. My 401k plan automatically reinvested all fund distributions. This allowed the full power of compounded growth to work.

S&P 500 Chart with CAGR

  • Strong International Fund Performance — In the past few years, my international investment performed much better than my domestic investments. One of the reasons behind this may be the weakening U.S. currency. In any case, this gave me a nice boost.

Well, that is pretty much how I have been beating the S&P 500 in a nutshell. I am still working on refining my stock picking skill, which I have been getting mixed results. For example, I have picked winners like Staples (SPLS), but also got some losers like Flemings (FLMIQ) and eToys (ETYS).

I would like to hear your comment. Thank you.

Read more about

domestic investments, downside risk, fund distributions, IRA, 401(k), investing, index

Recommended articles

Get free updates

  twitter  via Twitter
  twitter  via Facebook
  rss  via RSS or Email

Share this article

Share  
Pinyo
Pinyo is the brain behind Moolanomy personal finance blog and a few other web sites. If you like this article, please subscribe for free daily email updates.

All posts by Pinyo

3 Comments

  1. gravatar
    September 9, 2007, 1:57

    I’m a bit confused. Are you using your dollar-weighted return, or time-weighted return here?

  2. gravatar
    September 9, 2007, 7:54

    Jonathan – welcome to Moolanomy. I actually didn’t know what dollar-weighted return and time-weighted return are and had to Google it.

    I assume your question applies to how I measure my portfolio performance and not the S&P. If I read the definitions correctly, I used time-weighted return. Basically, I treat any net new money added for the entire year as if it’s been there for the whole year.

    So, if I add the money every 2 weeks and it’s a trending up year most of my money did not have as much time to grow that year and will underperform.

    Does this answer your question?

  3. gravatar
    September 9, 2007, 10:55

    Did some more research. What I’ve used is actually Holding Period Return (HPR), not Time Weighted Return (TWR).

Please share your comment:


Please do not use the name of your site or keywords.


Email will not be published.

Comment Rules: Constructive criticism is welcomed. Please use your PERSONAL name or initials and not your business name or URL, as the latter comes off like spam and I'll most likely delete your comment. Have fun and thanks for adding to the conversation! Here's our comment policy and guidelines.

Your Credit Score

Featured Reviews

Featured Articles

Recent Articles

 

Important Notice:

The information found on Moolanomy is provided and intended for informational and entertainment purposes only and does not constitute financial, legal, or other advice of any kind. The information contained on this site is aimed at a general audience, and does not attempt to offer specific advice to your specific circumstances. If you are looking for professional advice, you should consult with an independent financial adviser.

This site contains information about third party products and services, such as credit card offers, online banking, discount brokers, and credit score services. While we endeavor to ensure that the information presented on this site is accurate at the time of publication, any offers and rates shown on Moolanomy can and do change without notice. Visit the official site of the offer for up-to-date information.

For additional information, please review our Terms and Conditions.

Affiliate Relationships

As required by FTC regulations, please note that we have a financial relationship with many of the companies mentioned on this site. We occasionally review products or services that we have been given access to for free. However, we do not accept compensation in any form in exchange for positive reviews and the reviews found on this site represent the opinions of the author.

Archives By Year

2007, 2008, 2009, and 2010