Company 401K, your thoughts?
07-03-2010, 07:38 PM
#51
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Now the huge error. Correct me if I'm wrong, but both you and Ms. Snider seem to believe that providing "consistent returns" is better than providing "variable returns" because those "variable returns" act as a drag on your investment over time. The web page you linked me seems to imply (second table) that Fred got screwed because his "average return" (7.21% according to Ms. Snider) obtained through variable returns year over year was worse than had he just earned 7.21% consistently over the 9 year period shown in the table. If you agree with the above, then keep reading.
Crap, what do they say about doing math in public? I'll give it a shot anyway.........
First of all, Fred did not earn a 7.21% return! Ms. Snider simply took the 9 ML returns in that column, added them together and divided by 9. That is NOT how one computes average returns and I have no idea why she would think that's how you do it. If it was that easy, we could all throw away our Excel spreadsheets and financial calculators!
Fred made a average, annualized return of approximately 4.1%, not 7.21%. He went from $1,000,000 to $1,436,096 over a 9 year period. So that's his real average, not the 7.21% Snider claims.
So now, of course in that same table, the Balance w/ML Returns balance at the end of 2003 is going to look better than the Consistent Returns? balance at the end of 2003 when you make the comparison. She's comparing a 4.11% average annualized return to a 7.21% average annualized return. The Consistent Returns? column wins because of its higher return, not because it is a consistent return.
The point of the lengthy explanation is that it matters not one bit whether one earns an average annualized return that is variable or consistent as far as the ending balance is concerned. If two accounts both have an average annualized return of 7.21% (for example), and one account earned EXACTLY 7.21% every year, and the other zig-zagged around but had a computed average annualized return of 7.21%, they will both have the same amount of money at the end of examined time period. In fact, as you probably already know, if you go to a financial website and look at a mutual fund's returns it will likely show an annualized average return, even though that fund likely zigged and zagged. They can do that because they are both the same. They simply express returns as annualized average returns to make for ready comparisons and to make it easier for humans to wrap their brains around the value of those zigs and zags.
Anyway, I have to go fly again!
Crap, what do they say about doing math in public? I'll give it a shot anyway.........
First of all, Fred did not earn a 7.21% return! Ms. Snider simply took the 9 ML returns in that column, added them together and divided by 9. That is NOT how one computes average returns and I have no idea why she would think that's how you do it. If it was that easy, we could all throw away our Excel spreadsheets and financial calculators!
Fred made a average, annualized return of approximately 4.1%, not 7.21%. He went from $1,000,000 to $1,436,096 over a 9 year period. So that's his real average, not the 7.21% Snider claims.
So now, of course in that same table, the Balance w/ML Returns balance at the end of 2003 is going to look better than the Consistent Returns? balance at the end of 2003 when you make the comparison. She's comparing a 4.11% average annualized return to a 7.21% average annualized return. The Consistent Returns? column wins because of its higher return, not because it is a consistent return.
The point of the lengthy explanation is that it matters not one bit whether one earns an average annualized return that is variable or consistent as far as the ending balance is concerned. If two accounts both have an average annualized return of 7.21% (for example), and one account earned EXACTLY 7.21% every year, and the other zig-zagged around but had a computed average annualized return of 7.21%, they will both have the same amount of money at the end of examined time period. In fact, as you probably already know, if you go to a financial website and look at a mutual fund's returns it will likely show an annualized average return, even though that fund likely zigged and zagged. They can do that because they are both the same. They simply express returns as annualized average returns to make for ready comparisons and to make it easier for humans to wrap their brains around the value of those zigs and zags.
Anyway, I have to go fly again!
There's nothing wrong with your math. However, I think you are misunderstanding what the article is saying.
In this example, the average of Fred's annual returns over the 9 year period is 7.21%. His total return for the 9 year period is, as you stated, a little over 4%. That is an important distinction here. If you start out with the fictitious $1 million, and then you have the annual returns that Fred experienced, then you are only going to get a ~4% return total over the 9 year period. On the other hand, if you start out with the fictitious $1 million, and then you have a 7.21% annual return compounded over the same 9 year period, you end up with $435,000 more in the account at the end of the period. That is the bottom line result and the point that is being made in the article. Which would you rather have over that 9 year period? Fred's actual returns, which averaged 7.21% on an annual basis but only actually yielded a little over 4% when all was said and done? Or 7.21% each and every year of that 9 year period? Personally, I'll take the more consistent return and the additional $435k... but that's just me!
07-03-2010, 08:56 PM
#52
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The reason why I bring up benchmarks is because if one is going to invest using a particular method, it's impossible to measure whether or not a method is working if you don't have a baseline to compare it to.
For example, let's say Acme Investing says they have a sure fire method to beat the S&P 500 and they claim that in one fictitious year, they made 30%! Well, 30% in any year is pretty excellent at first blush. But if in that same year the S&P 500 (it's benchmark) made a 40% return, then I would say Acme had a pretty bad year! Granted, one year's returns doesn't mean squat, but I'm just trying to explain why I personally think benchmarks are important. Regardless, your method seems to be beating what you're comparing it to and that's what is important to you and I understand that.
For example, let's say Acme Investing says they have a sure fire method to beat the S&P 500 and they claim that in one fictitious year, they made 30%! Well, 30% in any year is pretty excellent at first blush. But if in that same year the S&P 500 (it's benchmark) made a 40% return, then I would say Acme had a pretty bad year! Granted, one year's returns doesn't mean squat, but I'm just trying to explain why I personally think benchmarks are important. Regardless, your method seems to be beating what you're comparing it to and that's what is important to you and I understand that.
Personally, based on my objectives, I don't think "benchmarks" are relevant at all... especially in any one particular year. I know that in any given year there can be other investments (in some years, many other investments) that will outperform my method. On the other hand, there are going to be years where my method will significantly outperform those same benchmarks, especially if they have negative returns. But what really matters is the end result...
When it's all said and done, if I get a consistent 12% annually over the time horizon of my investment (15 more years to retirement and then however long I'm around and kicking after that), then I will have met my investment/retirement objectives. If there was something else that had as high a likelihood of getting a consistent 12% annually over my time horizon, at the same approximate level of risk and with the same amount of effort on my part, then that would be something worth comparing. But my objective is not to outperform any particular benchmark in any given year. Like I said before, I really don't think that's even relevant.
My objective is to outperform all other investments over my time horizon, which is hopefully at least another 40 years. Right now, I'm not aware of anything else that is really comparable or that meets my personal objectives as well as the Snider Method. If you've got something better, it would certainly be beneficial to those reading this thread. Heck, I might even want to look at it too!
07-05-2010, 01:37 PM
#53
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Joined APC: May 2009
Posts: 474
When one is working with the annualized returns of an investment, you can't simply average them. The average return has to be computed with a financial calculator or a spreadsheet or using a mathematical formula. To be clear, the AVERAGE ANNUAL RETURN of Fred's investment was 4.1%. Fred's TOTAL RETURN over the time period was 43.6%. The AVERAGE ANNUAL RETURN of Snider's example was 7.21%. Comparing a AVERAGE ANNUAL RETURN of 7.21% to a AVERAGE ANNUAL RETURN of 4.1% will always make the 7.21% the winner. Her math is wrong, her logic is wrong, and "consistent" returns aren't better or worse than "zig zag" returns if the IRR is the same for two investments and the time period considered is the same. I guess we're going to have to agree to disagree on this one and I'll let it go after I type this period-->.
My objective is to outperform all other investments over my time horizon, which is hopefully at least another 40 years. Right now, I'm not aware of anything else that is really comparable or that meets my personal objectives as well as the Snider Method. If you've got something better, it would certainly be beneficial to those reading this thread. Heck, I might even want to look at it too!
Once in a while, I'll run across a paper on hedge fund returns like this one, and keep in mind that hedge funds hire the smartest of the smartest and they have difficulty even beating their benchmarks, never mind making 12% annualized. So if true, the Snider method is doing something that I don't think anyone has ever been able to do for long periods of time, so I wouldn't be able to show you a better method because I don't know of one!!
Good luck. If you make those 15% returns, YOU'RE BUYING THE BEER!!!
07-05-2010, 02:54 PM
#54
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Posts: 2,874
You can't "average" numbers the way she did when you're computing an internal rate of return (IRR) for an investment. The 7.21% is a nonsense number and is just an average of 9 numbers in a column. That 7.21% can't be used in any type of analysis because it doesn't mean anything from a financial return standpoint.
When one is working with the annualized returns of an investment, you can't simply average them. The average return has to be computed with a financial calculator or a spreadsheet or using a mathematical formula. To be clear, the AVERAGE ANNUAL RETURN of Fred's investment was 4.1%. Fred's TOTAL RETURN over the time period was 43.6%. The AVERAGE ANNUAL RETURN of Snider's example was 7.21%. Comparing a AVERAGE ANNUAL RETURN of 7.21% to a AVERAGE ANNUAL RETURN of 4.1% will always make the 7.21% the winner. Her math is wrong, her logic is wrong, and "consistent" returns aren't better or worse than "zig zag" returns if the IRR is the same for two investments and the time period considered is the same. I guess we're going to have to agree to disagree on this one and I'll let it go after I type this period-->.
When one is working with the annualized returns of an investment, you can't simply average them. The average return has to be computed with a financial calculator or a spreadsheet or using a mathematical formula. To be clear, the AVERAGE ANNUAL RETURN of Fred's investment was 4.1%. Fred's TOTAL RETURN over the time period was 43.6%. The AVERAGE ANNUAL RETURN of Snider's example was 7.21%. Comparing a AVERAGE ANNUAL RETURN of 7.21% to a AVERAGE ANNUAL RETURN of 4.1% will always make the 7.21% the winner. Her math is wrong, her logic is wrong, and "consistent" returns aren't better or worse than "zig zag" returns if the IRR is the same for two investments and the time period considered is the same. I guess we're going to have to agree to disagree on this one and I'll let it go after I type this period-->.
If you take each of the nine years in the "Fred" example (which ranged from a high of +54.7% to a low of -32% and everything in between), add each year together and divide by 9, you find that the average of those nine numbers is 7.21%. I know I went through school when they were teaching the "old" math, but I'm pretty sure that's still the way you do averages.
Then, if you take each of the nine years in the "consistent" example (which ranged from a high of 7.21% to a low of 7.21% and everything in between), add each year together and divide by 9, you find that the average of those nine numbers was also 7.21%.
Funny thing is that the "consistent" example ends up with $435K more than the "Fred" example. You can apply whatever type of return measurement you want. But if I'm looking at two investments, I'm going to prefer the investment that ends up with more money.
That's my objective too!! I'm not aware of any investment that has provided a consistent, risk adjusted IRR of 12% per year, every year until I heard of the Snider method, and I would consider myself relatively well read (but dumb pilot). I have heard of many that claim that return, but I've never read any peer reviewed examples that could make consistent returns of 12% a year, year after year, for any significant length of time. If Snider can provide the investment world an auditable record that shows a 12% annualized return for over a decade or so (with a market cycle as a bonus!) with less risk than simply buying and holding the underlying stock/bond/commodity/whatever over the same time period, she will be a very wealthy woman because every hedge fund manager, every mutual fund company, every brokerage house would want her to repeat that return........and they will pay her HANDSOMELY. There have been plenty of open and closed end funds that allow the use of option strategies to enhance returns (and risk), but even though those are professionally managed by very smart people, I don't know of one that made 12% returns consistently, year after year, and certainly not over 15 years.
Once in a while, I'll run across a paper on hedge fund returns like this one, and keep in mind that hedge funds hire the smartest of the smartest and they have difficulty even beating their benchmarks, never mind making 12% annualized. So if true, the Snider method is doing something that I don't think anyone has ever been able to do for long periods of time, so I wouldn't be able to show you a better method because I don't know of one!!
Good luck. If you make those 15% returns, YOU'RE BUYING THE BEER!!!
Once in a while, I'll run across a paper on hedge fund returns like this one, and keep in mind that hedge funds hire the smartest of the smartest and they have difficulty even beating their benchmarks, never mind making 12% annualized. So if true, the Snider method is doing something that I don't think anyone has ever been able to do for long periods of time, so I wouldn't be able to show you a better method because I don't know of one!!
Good luck. If you make those 15% returns, YOU'RE BUYING THE BEER!!!
Just to be clear, Snider is not making any kind of guarantee of a 12% annualized yield. That is the objective of the method. So far, it has been pretty consistent in doing that... but not perfectly consistent. There have been a few months at a time where the annualized yields have been less than 12% and some where it has been greater than 12%. But the relatively small deviation from that 12% has been pretty impressive over the documented history of the method (2002 through 2010)... especially considering what the market has been doing during that time period. And my experience with it over the five years I've been using it has been that the method performs as designed. My yields have been very much like the documented yields on Snider's web site.
So that's all I can really tell you about it. I'm not making it up. It doesn't matter one bit to me if you like or dislike, trust or distrust, Snider's investment philosophy and/or track record. Like I said before, I only got into this discussion initially because someone was suggesting that the money market was a good place for a person's 401k money. I thought I could add some perspective to that discussion, and I hope I have.
Last edited by DAL 88 Driver; 07-05-2010 at 05:14 PM. Reason: clarity
07-05-2010, 05:29 PM
#55
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Here's an article that might give you some ideas of the questions you should get answered before making insinuations like the one you made above:
Who Is Your Investment Co-Pilot?
07-08-2010, 06:06 AM
#56
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Joined APC: Mar 2009
Position: ATL MD-88A
Posts: 2,874
I know nothing about any of the individuals you are talking about. I was merely making a point about returns with documentation.
false documentation is still documentation. It wasn't shown to be false until years and years afterwards. The returns weren't shown to be false until years and years afterwards. All financial wizards are wizards or are shown to be false prophets only years later. Just telling people to watch their backs and don't always believe the hype. Someone is always trying to sell you something.
false documentation is still documentation. It wasn't shown to be false until years and years afterwards. The returns weren't shown to be false until years and years afterwards. All financial wizards are wizards or are shown to be false prophets only years later. Just telling people to watch their backs and don't always believe the hype. Someone is always trying to sell you something.
07-23-2010, 07:18 AM
#57
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Joined APC: Apr 2007
Posts: 23
Calculating Rate of Return
To back up Global's point with math that even I can understand:
If you start with $10 and return 100% (10+(10*1)=20)the first year and -50% (20*.5)the second year you are left with the exact same $10. But your average return (100+-50 divided by 2) is 25%.
This is the reason that you cannot use the average (mean) of investment returns.
If you start with $10 and return 100% (10+(10*1)=20)the first year and -50% (20*.5)the second year you are left with the exact same $10. But your average return (100+-50 divided by 2) is 25%.
This is the reason that you cannot use the average (mean) of investment returns.
08-18-2010, 06:36 PM
#58
Gets Weekends Off
Joined APC: Mar 2007
Position: standing-by
Posts: 287
To back up Global's point with math that even I can understand:
If you start with $10 and return 100% (10+(10*1)=20)the first year and -50% (20*.5)the second year you are left with the exact same $10. But your average return (100+-50 divided by 2) is 25%.
This is the reason that you cannot use the average (mean) of investment returns.
If you start with $10 and return 100% (10+(10*1)=20)the first year and -50% (20*.5)the second year you are left with the exact same $10. But your average return (100+-50 divided by 2) is 25%.
This is the reason that you cannot use the average (mean) of investment returns.
08-18-2010, 06:46 PM
#59
Gets Weekends Off
Joined APC: Mar 2007
Position: standing-by
Posts: 287
CargoMan-
Bit late to this thread. I started an IRA in the late 90's. As of this year my returns are the same as if I shoved the $$ in a mattress for the last decade.
Finally got my cousin to take a look at the IRA. He's been using ETF's that short the market as well as some option trading. He actually makes a living off his trades. And this year I've done better.
I can say that for me, investing in a diverse group of mutual funds per investment advisors advice did not work.
What Boilerup said is right, if you don't know how to invest, at least take the company match (FREE MONEY) and the tax benefits. And after the deflationary period ends (who knows when that will be) inflation may come back with a vengeance, and you can get perhaps 15% in a money market. Or maybe you'll find a savvy money manager to help you out.
Bit late to this thread. I started an IRA in the late 90's. As of this year my returns are the same as if I shoved the $$ in a mattress for the last decade.
Finally got my cousin to take a look at the IRA. He's been using ETF's that short the market as well as some option trading. He actually makes a living off his trades. And this year I've done better.
I can say that for me, investing in a diverse group of mutual funds per investment advisors advice did not work.
What Boilerup said is right, if you don't know how to invest, at least take the company match (FREE MONEY) and the tax benefits. And after the deflationary period ends (who knows when that will be) inflation may come back with a vengeance, and you can get perhaps 15% in a money market. Or maybe you'll find a savvy money manager to help you out.
08-20-2010, 02:39 PM
#60
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Joined APC: Jul 2008
Position: 747 Captain (Ret,)
Posts: 807
Every now and then a company goes bankrupt. If you have one of these in your portfolio, and don't sell or otherwise show the loss, The Snider accounting system will still show you making money.
joe
joe
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