Wednesday, May 7, 2008

Time changes everything

Back in March, I posted about the dismal returns I was seeing on my retirement investments. When taking into account my bi-weekly ESP payroll deductions, my investment performance from April 2007 through February 2008 represented a 0.98% annualized growth rate. When I added in my employer's matching contributions, this actually dropped to -4.29% annualized growth.

Well, that was before the market rally that began in mid-March. Since February 29, my retirement balance has increased by $3,383.21, with only $856.12 in contributions during the intervening two months. When I put this in terms of a one-year growth rate, I now come out ahead whether I include the employer match or not. Without the match, my growth rate for the past 12 months is 6.86%, compared to 1.19% when I include the match.

It's unnerving to see such a wide swing in market performance during a one-year period. Two months of bullish growth has taken my annual growth rate from 0.98% to 6.86%. In order to turn around the previous slump, my annualized growth rate during those two months was actually 36.62%. That's a big change from the decline we saw earlier in the year.

I find it fascinating that your view of market performance can vary so widely based on the window you look at. Canadian Capitalist has a great post today about looking at your response to the recent market dips as a gauge for your actual risk tolerance. If your gut reaction to the widespread price drops was to sell, then you should probably consider a more conservative portfolio.

Personally, I was content to ride out the market swings. This may be because these investments are largely academic to me at this point. Since this is all strictly "future money", I'm able to stay relatively cool about my investment performance. As I get closer to actually planning to use this money, however, and when I eventually build up a non-retirement investment portfolio, we'll see just how calm I remain through future market adjustments.

1 comment:

craigatk said...

This is why it is so important to ride out all the waves of the market. Those who sell when the market falls and later rebuy when it rises, often miss out on the biggest up swings because they are much too late to return to the market.