2012 Recap - Financial Edition

Now is the time I reflect back on the prior years goals/objectives as well as taking a look at our 401k/retirement accounts and see where we're at and see if things need adjusting.

Rather than go into all the details of how/when to re-balance your 401k, I'll refer back to one of the first posts I did on the blog two years ago.  It just basically says that if you started the year wanting to be in say 75% stocks and 25% bonds, check your account(s) and if the percentages are substantially different, you can use the re-balance tools which should be available to you in order to get things back in sync. 

My main account says that it is currently 69% US stocks, 24% Foreign stocks and 7% Short Term, which seems like an ok mix to me as long as the returns have been decent, which we will evaluate now.  I'll show you the process I go through, so that you might benefit from a similar process for your own account(s). 

Taking a look at the stock market between Jan 1st and Dec 24th, the S&P 500, which is the most widely used benchmark to compare against, went from 1277 to 1426.  That is an 11.6% return, which is an excellent year for the overall market!

If you watch all the doom and gloom in the news media over the past year and all the talk about the fiscal cliff recently, you would probably be hiding in the closet in the fetal position.  The market tells a more positive story.

While the market can swing greatly on any given day, week, or month, the trend over the year has been up and generally speaking the market is forward looking.  Which means that the outlook going into the new year is that things are getting better.  If you had been glued to the negativity and that fear kept you from investing, you would have missed out on a good year. 

The way I rate the performance of our retirement/investment accounts is to compare the rate of return against the rate of return of the S&P 500.  Since the return of the S&P is 11.6% as of 12/24, I am hoping that our return is equal to or preferably greater than that % by a few percentage points.

If your percentage rate of return is substantially lower than your benchmark, it is probably a good idea to re-evaluate your investment options in your account and compare the rates of returns of the available funds year to date and see if it might be time to move things around and/or change where your $ is allocated going forward.

Looking at our retirement accounts, here is how things stack up for 2012:

Benchmark/Target rate of return:  11.6%
My 401k: 14.8%
Wife 401k: 11.7%
Roth IRAs: 15.3%
Rollover 401k actively traded: 10.2%

I was pleasantly surprised at the results.  That tells me that we're in good shape, with no major adjustments needed this year to our retirement accounts.  However, that also tells me that my trading account is under-performing.  I know the reason for that though.  I had 1 bad trade in the last 30 days that brought the percentages down.  Without that one trade my return would have been 11.7%, so I just need to re-group and stick to my typical plan, which is to cut any loses much quicker than I did with that one.

I hope that evaluation was useful to you and I definitely recommend you evaluate your performance on a yearly basis.  I will be going over last years goals and will work on some new goals for 2013 in the next few posts.  I hope you had a great Christmas with family and friends and here is an early wish for a healthy, happy, prosperous 2013!