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Author: osho2025 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25242  
Subject: fund VS. personal rate of return Date: 12/6/2012 1:50 PM
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In doing some end-of-year re-calibration, I noticed something odd about fund returns vs personal rate of returns.  Take the funds I selected for example, the following chart shows YTD performance.

As an example, here is one fund and its performance
 
Fund Name                3 Months YTD     1 Year  3 Year 5 Year 10 Year Life
John Hancock Balanced    6.31%    14.99%  23.94%  8.60%  4.10%  9.51%   6.03%

This table shows my personal rate of return by investing in these funds

 
Fund Name                3 Months (08/01/12- 10/31/12) YTD  (01/01/12- 10/31/12) 1 Year 
John Hancock Balanced    0.96%                         1.03%                     1.04%

What gives with such wide variance between fund performance and personal rate of return in my case?

I've seen this same skewed result for 3 other funds - in the end my PROR is negative and all funds are performing near 10% for the year. 

Why?

Thanks!
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Author: osho2025 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24965 of 25242
Subject: Re: fund VS. personal rate of return Date: 12/6/2012 1:51 PM
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Forgot to mention but this fund is managed through Paychex as part of my employer's 401K plan.

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24966 of 25242
Subject: Re: fund VS. personal rate of return Date: 12/6/2012 2:05 PM
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First realize that each of these figures is calculated based on a given start and finish date. As prices change day to day at least, make sure you are using the same dates for comparison.

If you are using numbers provided by the mutual fund company, I think you will find they are calculated before loads and fees. Hence, most likely you are being charged fees on reinvested funds.

Also note that when you reinvest dividends and capital gains distributions, the exact figure gets distorted by the purchase of additional shares.

The best way to compare returns is to look up share prices on the two dates (I use Yahoo Finance) and do your own calculations. Adjustments for payouts can be needed, but approximate numbers are easy to come by, and those are ones you can count on.

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24967 of 25242
Subject: Re: fund VS. personal rate of return Date: 12/6/2012 4:23 PM
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osho2025,

Besides what Paul mentioned, your personal rate of return can be skewed by contributions. Those funds don't start contributing to your rate of return until the day after the shares are purchased. Since you only show one year on your personal rate of return, I suspect you have less than 3 years of contribution history, meaning that your current year's contributions were probably a significant fraction of the total.

I worked for 4 years at a company that used John Hancock funds. John Hancock has very high expense ratios. On top of that my employer's plan passed a management expense charge back to the employee. This was mentioned briefly, in passing in the fine print toward the back of the plan documents. The management expense was over 1%/year. I happen to read such documents.

I was a bad employee because I embarrassed the account rep by CC'ing a reply to a company-wide email distribution list where I pointed out that the effective expense ratio of our lowest-cost, unmanaged index fund was over 2%/year. This additional expense was never reported anywhere in any account statement or other formal document - your account would just lose some (fractional) fund shares every month. It was easy to miss too, because it would tend to coincide with contributions.

Unfortunately I couldn't get management interested in it because and I paraphrase, "But why do we care? The market is going up, I'm making money and I've never lost money in these accounts!" Fortunately management found my work too valuable to give me cr*p about these complaints.

Of course the market collapsed during my last year there - 2008. Not that it mattered after that - the company collapsed too. But before that I was reamed for a few grand in expenses - aka commissions - by that plan.

- Joel
Who wonder's who's "retirement plan" that really was ... mine or the people that sold it to my employer?

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24968 of 25242
Subject: Re: fund VS. personal rate of return Date: 12/7/2012 4:17 PM
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Without looking at your specific numbers, this is why you would see a lower personal rate of return than the fund. Note, this will ALWAYS be the case when you are dollar cost averaging in and when you compare YTD numbers and your personal numbers - unless the fund goes straight down and never up - then your PROR would actually be better that the fund performance.


http://finance.yahoo.com/echarts?s=JALBX+Interactive#symbol=...

Notice that at the beginning of the year the price increased. Come May and the price went down. This means that everything you bought after 1/1 through the first peak of the year, was bought at a price higher than the YTD starting point.

This means that for 5/12s of the year, you bought at a higher price than the YTD number.

Even when the fund bottomed out in July, the bottom was still higher than the price on 1/1. You continued to buy (dollar cost average in) as the fund bounced back and then finished up nicely for a good YTD number - but all of your purchases through the rest of the year were again at a price higher than 1/1.

All this doesn't mean that you did lousy. Quite the contrary. You simply bought more shares over the summer than you are buying now, and the shares you bought in April and May did not recover in price until September.

Your average price is probably pretty good and much better than the 1% PROR indicates.

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Author: bension18 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25016 of 25242
Subject: Re: fund VS. personal rate of return Date: 2/28/2013 4:33 PM
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Calculating your personal return can get complicated since you have multiple contributions, re-invested dividends and possibly fees mentioned earlier.

If you made a one-time contributions on Jan 1 - at the end of the year it would be easier to calculate the return.

Try using excel to see if you can match the return on your statement. Use the XIRR function, this incorporates the timing of each contribution/dividend re-investment

http://www.experiglot.com/2006/10/17/how-to-use-xirr-in-exce...

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