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Author: 2giantsteps One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: Year End Results... Date: 1/6/2004 12:29 PM
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Hi,

I was just wondering what everyone's return was on their 401(k) or other investment accounts was for the year.

I had a 22.2% return for 2003. I am new to investing and thought that this was pretty good since most things that I read say expect the average of 10% return. This is much better than last year when I had a -2%.

How did you do?

2gs
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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38379 of 75335
Subject: Re: Year End Results... Date: 1/6/2004 2:06 PM
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2giantsteps, you asked:

<< I was just wondering what everyone's return was on their 401(k) or other investment accounts was for the year.

I had a 22.2% return for 2003. I am new to investing and thought that this was pretty good since most things that I read say expect the average of 10% return. This is much better than last year when I had a -2%.

How did you do?
>>

The portfolio in my wife's 401(k) got +32.25% for 2003, but the year before it was a –10.8%. Like you, over the last 2 years I have “averaged” in the realm of 10%+. But over the last 4 years the average has only been +5.84%. So you see, just what kind of “average” you might have really depends on what segment of time you carve out of a list of variable returns. And I might add, you need to be very careful about your thinking about “average” returns using constant rate thinking.

For example, this 401(k) “average” rate of return was 5.84% over the last 4 years (11.33% -9.93% -10.3% +33.25%/4). The actual return over that period calculates out to be 3.55%. But . . . if I had earned 5.84% EACH year instead of it being the variable return as shown, the 401(k) would have had 5.5% more in it today.





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Author: 2giantsteps One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38380 of 75335
Subject: Re: Year End Results... Date: 1/6/2004 2:26 PM
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<<The portfolio in my wife's 401(k) got +32.25% for 2003, but the year before it was a –10.8%. Like you, over the last 2 years I have “averaged” in the realm of 10%+. But over the last 4 years the average has only been +5.84%. So you see, just what kind of “average” you might have really depends on what segment of time you carve out of a list of variable returns. And I might add, you need to be very careful about your thinking about “average” returns using constant rate thinking.

For example, this 401(k) “average” rate of return was 5.84% over the last 4 years (11.33% -9.93% -10.3% +33.25%/4). The actual return over that period calculates out to be 3.55%. But . . . if I had earned 5.84% EACH year instead of it being the variable return as shown, the 401(k) would have had 5.5% more in it today.>>

Thanks for sharing. I haven't kept track all that long. Again...I am new to this. I am still in the learning process and know that understanding personal finance is a work in progress. Maybe I'll sit down this weekend and look at my numbers for the last four years.

2gs

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Author: gogreengo Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38381 of 75335
Subject: Re: Year End Results... Date: 1/6/2004 2:38 PM
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For 2003, we had a 32% return in my DH's 401k. I haven't checked the return for 2002, but maybe I will just out of curiosity.

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38384 of 75335
Subject: Re: Year End Results... Date: 1/6/2004 6:53 PM
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2giantsteps: <<<<I was just wondering what everyone's return was on their 401(k) or other investment accounts was for the year.

I had a 22.2% return for 2003. I am new to investing and thought that this was pretty good since most things that I read say expect the average of 10% return. This is much better than last year when I had a -2%.>>>>

TTRoberts: "The portfolio in my wife's 401(k) got +32.25% for 2003, but the year before it was a –10.8%. Like you, over the last 2 years I have “averaged” in the realm of 10%+. But over the last 4 years the average has only been +5.84%. So you see, just what kind of “average” you might have really depends on what segment of time you carve out of a list of variable returns. And I might add, you need to be very careful about your thinking about “average” returns using constant rate thinking.

For example, this 401(k) “average” rate of return was 5.84% over the last 4 years (11.33% -9.93% -10.3% +33.25%/4). The actual return over that period calculates out to be 3.55%. But . . . if I had earned 5.84% EACH year instead of it being the variable return as shown, the 401(k) would have had 5.5% more in it today."


Average when talking about stock returns typically does not mean arithmetical mean of yearly returns (11.33% -9.93% -10.3% +33.25%/4, in Ted's example).

Average when talking about stock returns typically means Compund Annual Growth Rate (CAGR), which is the "imaginary number that describes the rate at which an investment grew as though it had grown at a steady rate" of growth."

See http://www.investopedia.com/terms/c/cagr.asp

For example, assuming no further contributions (to be explained later), and account that gains 100% in year 1 but then loses 50% in year 2 has 2-year CAGR of 0!

Also, please be careful that your return calculations reflect ongoing contributions, so that you do not make the same mistake of overestimating returns, like the infamous "Beardstown Ladies Investment Club" and their editors, who wildly overstated the actual returns.

"Beardstown, Illinois, was home to a group of retirees who in the early 1990s claimed their investment club returned three times higher than the average by mutual funds and professional money managers. They were featured in press, on talk shows, and marketed in books and videos bearing such titles as: The Beardstown Ladies' Common-Sense Investment Guide - How We Beat the Stock Market and How You Can, Too; The Beardstown Ladies' Little Book of Investment Wisdom; The Beardstown Ladies: Cookin' Up Profits On Wall Street, etc.

It turned out that not only hadn't they beaten the stock market at all, but also their actual return was closer to nine percent a year for the period that they and the books bearing their name had touted 23.4%. At least one purchaser of the Beardstown Ladies' books was appalled that the book jackets, written by the commercial propagandist -- err, publisher -- touting the claims, were still being printed uncorrected even after their inaccuracies had been discovered."

http://www.insidervc.com/BeardstownVenturesPartAInstallmentTwo.htm

"Here's what happened. From 1983 to 1993, the Dow Jones industrial average recorded an average 15.73 percent return on stocks. Over the same period, The Ladies' claimed they beat the Dow Jones with a whopping 23.4 percent return.

Recently however, the Ladies discovered a “computer input error” that revealed falsely inflated profits. Instead of beating the market, the Ladies could show returns of only 9.1 percent — much better than a passbook savings account, but not even 2/3 of the Dow Jones."

http://www.afscme.org/publications/primetime/pt98203.htm

See also: http://old.better-investing.org/clubs/ladies.html

http://old.better-investing.org/clubs/from-the-ladies.html

The substantial number of books they sold and whatever related money they made therefrom is basically the result of fraud.

For your yoru calculation to be accurate, assuming that you are making ongoing contibutions, you cannot simply look at beginning of year and end of year balances and calculate a return. The end of year balance includes those ongoing contributions, but the simple calculation calculates them as gains (overinflating return) instead of as additional principal.

If you already new this, then my apologies for belaboring the obvious.

Regards, JAFO


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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38385 of 75335
Subject: Re: Year End Results... Date: 1/6/2004 7:19 PM
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I was just wondering what everyone's return was on their 401(k) or other investment accounts was for the year.

In 2003, my IRA was up 18%. But since taking over management of it in the beginning of 2000 (who says market timing can't be done <grin>), I'm down about 20%.

--Peter

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Author: situate One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38388 of 75335
Subject: Re: Year End Results... Date: 1/6/2004 8:49 PM
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I was just wondering what everyone's return was on their 401(k) or other investment accounts was for the year.

FWIW, my rollover IRA's return for 2003 was 40.52%. My wife's and my Roth IRAs' returns (we have the same holdings) were 44.26%.

The lifetime CAGR of the rollover account (since April, 2001) is 6.60%.

The lifetime CAGR of the IRAs (since July, 1998) is 3.18%.

I've been pretty slothful in these accounts since their inceptions. I may be a little more active in these accounts once the bulls have had their run.




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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38389 of 75335
Subject: Re: Year End Results... Date: 1/6/2004 8:55 PM
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JAFO31, writes:

<< Average when talking about stock returns typically does not mean arithmetical mean of yearly returns (11.33% -9.93% -10.3% +33.25%/4, in Ted's example).

Average when talking about stock returns typically means Compund Annual Growth Rate (CAGR), which is the "imaginary number that describes the rate at which an investment grew as though it had grown at a steady rate" of growth."
>>

That's absolutely correct . . . and a point I suppose I should have made. That 3.55% I stated for over the last 4 years is the Average Annual Total Rate of Return (or GAGR if you will) as opposed to the average/mean of 5.84%. And as for the last two years, this 401(k) AATRR was 9.51%.

And the point I was trying to make clear still stands . . . just note JAFO's clarification about what "average return" is usually referring to.


. . . . thanks JAFO for making that point clear! :-)

Ted


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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38390 of 75335
Subject: Re: Year End Results... Date: 1/6/2004 9:09 PM
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situate, you wrote:

<< "I was just wondering what everyone's return was on their 401(k) or other investment accounts was for the year."

FWIW, my rollover IRA's return for 2003 was 40.52%. My wife's and my Roth IRAs' returns (we have the same holdings) were 44.26%.

The lifetime CAGR of the rollover account (since April, 2001) is 6.60%.

The lifetime CAGR of the IRAs (since July, 1998) is 3.18%.

I've been pretty slothful in these accounts since their inceptions. I may be a little more active in these accounts once the bulls have had their run.
>>


Hmmmmm??? Just think how much less stress there might have been if one had simply put the funds into an interest bearing position starting in 1998 and got a guaranteed 5%. Sometimes, less volatile interest returns rather than the stock market can feel good, huh???

And guess where one could have found such guarantees . . . ? Dare I say the "A" word? <VBG>

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Author: iamdb Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38392 of 75335
Subject: Re: Year End Results... Date: 1/7/2004 6:11 AM
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31.4% for 2003. I calculated a CAGR for 1989-2003 of 24%, but then realized I hadn't accounted for an inflow from an inheritance nor the outflow from RMDs associated with that inheritance. I need to use net annual value as the basis for CAGR calculation. When I correct that error, I'm sure I'll have a much lower CAGR.

db

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Author: situate One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38393 of 75335
Subject: Re: Year End Results... Date: 1/7/2004 7:47 AM
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And guess where one could have found such guarantees . . . ? Dare I say the "A" word?

You're going to have to because I don't know what you're referring to.

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38394 of 75335
Subject: Re: Year End Results... Date: 1/7/2004 8:27 AM
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Ted wrote >>And guess where one could have found such guarantees . . . ? Dare I say the "A" word?<<


situate asked .>>>You're going to have to because I don't know what you're referring to. <<<

He is trying to sell you an annuity

While a life annuity does provide a lifetime income stream for a retiree, they are inferior products for building a retirement nestegg.

Unless, of course, one sells them. <smile>

buzman

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Author: situate One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38396 of 75335
Subject: Re: Year End Results... Date: 1/7/2004 9:20 AM
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He is trying to sell you an annuity.

Been there; done that. No thanks.

Thanks for the insight.

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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38398 of 75335
Subject: Re: Year End Results... Date: 1/7/2004 11:15 AM
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JAFO

Excellent post! I was going to mention many of the same things you did.

One addititional point for retirees who are withdrawing funds from their portfolios is that volatility is equally important to the CAGR percentage. Given two portfolios having equal CAGR's (long term), you can safely withdraw more money per year from the one with lower volatility.

This is one of the main reasons that a 70/30 equity/bond split is the best for a retirement account during the withdrawal phase. Shift away from this split, and the safe withdrawal rate goes down.

All that said, my overall 70/30 portfolio increased about 20% in 2003 while I withdrew 4%.

Of course, if you are not withdrawing funds yet, and you have at least five years before you will, then volatility is only important to how well you will sleep at night (ie, your risk tolerance).

Russ

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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38399 of 75335
Subject: Re: Year End Results... Date: 1/7/2004 11:39 AM
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Busman, you wrote:

<< Ted wrote >>And guess where one could have found such guarantees . . . ? Dare I say the "A" word?<<


situate asked .>>>You're going to have to because I don't know what you're referring to. <<<

He is trying to sell you an annuity

While a life annuity does provide a lifetime income stream for a retiree, they are inferior products for building a retirement nestegg.

Unless, of course, one sells them. <smile>
>>

Hmmmm??? I see you conveniently left my “<VBG>” off of the quote from me. Just as you're “<smile>” suggests some humor, so I also intended some humor.

I was NOT trying to “sell” anyone an annuity. (note: in the ten years I've been active in internet message boards and chat rooms, I've never tried to “sell” anyone anything). But yes, it was indeed an annuity I was referring to . . . and, you provided just the kind of response I expected. ;-)


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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38419 of 75335
Subject: Re: Year End Results... Date: 1/8/2004 4:50 PM
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Yikes, you all sound like math whizzes (something I'm definitely NOT). And since I'm not, can I run my simple way of tracking returns by you to see if it makes any sense?

At the end of each calendar year, I calculate what my 'cost' was, that is to say, the net of all additions and withdrawals during the year, plus the 'cost' balance from last year. On a spreadsheet I then plot the cost at the end of each year, and the value at the end of each year. By comparing the two I get an 'overall' or 'cumulative' rate of return. So, if in year 1 I had invested (net) $1000 and at the end of that year had $1500 in value, that would indicate a 50% rate of return. If I did the same in year 2, ending with a cost of $2000 and a balance of $2300, my 'cume' rate of return is 15%. To calculate what the actual rate of return was for year 2 I take the $300 gain, deduct the $500 gain from year 1, and wind up with a loss of $200. So, according to my figures, my Year 2 return is a 10% loss. Is this a crazy way to do this--it seemed fairly straightforward to me ????

Anyhow, based on this calculation, my total portfolio return including annuities, 401K, IRAs and brokerage accounts for 2003 was 15.38%.

Note that this doesn't quite make up my losses of 20.94% in 2000, 7.05% in 2001, and 4.77% in 2002. As a matter of fact, my portfolio is still underwater with a cumulative loss of .83% since 1994. This is due to the fact that I had many less dollars invested during the gangbuster years (1994-1999) then during the bear years (2000-2002). For example, my 15% return in 2003 netted me double the dollars that my 36% return in 1999 did. Hopefully now that I have a lot more dollars invested, the market will continue to turn around.

Any comments on my method are encouraged, only gently please...

2old

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38433 of 75335
Subject: Re: Year End Results... Date: 1/8/2004 10:24 PM
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2old4bs: "At the end of each calendar year, I calculate what my 'cost' was, that is to say, the net of all additions and withdrawals during the year, plus the 'cost' balance from last year. On a spreadsheet I then plot the cost at the end of each year, and the value at the end of each year. By comparing the two I get an 'overall' or 'cumulative' rate of return."

total cumulativee rate of return since inception, ok.

"So, if in year 1 I had invested (net) $1000 and at the end of that year had $1500 in value, that would indicate a 50% rate of return."

I would depend on when during the year you invested. If you invested the entire net $1000 on 1/2/xx and ending the year 12/31/xx with $1500, I would agree.

OTOH,if you invested over the course of the year, your actual annual return would be higher.

The easiest example would be to assume that you lump sum invest the entire $1000 on 7/1/xx and ended the year with $1500, you annual rate of return would be 100% becuase you made $500 on $1000 in six months.

"If I did the same in year 2, ending with a cost of $2000 and a balance of $2300, my 'cume' rate of return is 15%. To calculate what the actual rate of return was for year 2 I take the $300 gain, deduct the $500 gain from year 1, and wind up with a loss of $200. So, according to my figures, my Year 2 return is a 10% loss. Is this a crazy way to do this--it seemed fairly straightforward to me ????"

Again, it depends when you invest, and losses work in reverse, if you were not fully invested for the entire year, then you annual rate would acutally be higher in a loss situation.

To stay simple, stay with the one year example we used above, but switch losses to gains.

If you invested the entire net $1000 on 1/2/xx and ending the year 12/31/xx with $500, I would agree that annual loss is 50%.

Assume that you lump sum invest the entire $1000 on 7/1/xx and ended the year with $500, you annual rate of loss would be 100% becuase you lost $500 on $1000 in six months.

IOW, annual rate of return (or loss) is intended to report what would have happened hypothetically if one had been fully invested the entire year and the actual results of the moer limited time period were repeated throughout the year.

For example, someone who invests $1000 on 1/2 and has only $600 left on 12/31 had a better year than someone who invested $1000 on 12/20 and had only $600 left on 12/31.

Just my $0.02. Regards, JAFO


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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38481 of 75335
Subject: Re: Year End Results... Date: 1/12/2004 3:46 PM
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Thanks for the response JAFO. I understand what you're saying about the time the capital was invested effecting the return. Unfortunately, accounts like my 401K, have contributions going in so often that I'm not sure if the difficulty of calculating a more exact return based on how much capital was invested over any period of time would really be worth the effort. I usually use my bonus $ to fund my other accounts in December, so there it would make a difference (and probably a relevant one) because I'm including those dollars as my 'cost' at year-end, when actually they've only been invested a few days!

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38564 of 75335
Subject: Re: Year End Results... Date: 1/16/2004 5:50 AM
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My self-directed IRA rose just under 40 percent for the year, thankfully. That includes dividends on various stocks and funds beinh held, plus my efforts to "grow" it by buying and selling -- and trading, too.

Vermonter

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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38586 of 75335
Subject: Re: Year End Results... Date: 1/16/2004 3:10 PM
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Vermonter:

<< My self-directed IRA rose just under 40 percent for the year, thankfully. That includes dividends on various stocks and funds beinh held, plus my efforts to "grow" it by buying and selling -- and trading, too. >>

That's really great! Don't you wish you could always to that. :-)

. . . so, what was you're rate of return for the year before? I only ask so it gives 2giantsteps (who started this thread) some sense of perspective.

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38587 of 75335
Subject: Re: Year End Results... Date: 1/16/2004 3:48 PM
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what was you're rate of return for the year before? I only ask so it gives 2giantsteps (who started this thread) some sense of perspective.

Sorry -- as I said in my email to you, I have no idea. We were busy selling our other home, packing up, cleaning up, etc. I had little time to "direct" anything and had it all parked in various mutual funds.

Vermonter

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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38588 of 75335
Subject: Re: Year End Results... Date: 1/16/2004 3:57 PM
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Vermonter:

<< orry -- as I said in my email to you, I have no idea. We were busy selling our other home, packing up, cleaning up, etc. I had little time to "direct" anything and had it all parked in various mutual funds. >>

Oh well . . . .most likely it's like the rest of us who had a nice negetive number. :-(




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