Wednesday, July 2, 2008

Some perspective on a month of -38% returns

From May 31 to June 30, the market value of my retirement savings dropped from $53,547.77 to $51,463.61. That's a decrease of $2,084.16, or 3.9%, which represents an annualized rate of return of -37.8%. Let's ignore, for a moment, the fallacy of predicting annual returns based on one month's performance. Let's also overlook the fact that I added $642.10 in contributions to my RRSP during this period, which actually makes this an even larger negative return.

The point is, June was not a great month for someone invested in the stock market.

When I look at a chart of my retirement savings over time, however, I see something interesting:

I have already commented on the fluctuations in my retirement and liquid savings, but this past month's performance is worth singling out.

The straight line approximation of my retirement savings growth over time goes right through the middle of the June 2008 point. That means that, based on data starting in April 2007, last month's performance was entirely consistent with the rate of growth I've seen over the past year.

This view is a bit simplistic, since I've really only got just over a year of history on which to base my rate of growth. However, it does serve as a good illustration of the fact that my savings growth is dependent on both contributions and investment growth. I need to manage both of these factors in order to stay on track.

Make no mistake: June still sucked from an investment return point of view. However, it was not nearly the deathblow that the -3.9% monthly growth would suggest.

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