I have a confession to make. Despite the proud claim of “personal finance made public,” I have omitted any serious discussion about a major part of our family finances. Except for a few indistinct references here and there, I’ve failed to even mention an entire section of our finances over the last two years. I’m talking about our retirement funds.
It’s not that I intentionally omit our retirement from any particular discussion. It’s just that, for now, it’s not a very interesting topic. For the last eight years we’ve been busy either accruing or paying off student debt. Retirement has been sitting on the back burner, doing its own thing without much supervision on our part.
So I’m going to make it right. Here is a full disclosure of that last missing piece of our finances – our retirement funds.
Our Investment Story
When Mr. SixFiguresUnder and I were in college, we fell in love, got married, and started saving for retirement. We knew it was the responsible thing to do, and that starting early would let compounding works its magic on our investments. The first year, we maxed out contributions to our individual Roth IRAs. The next year, we made additional IRA contributions and also took advantage of a 401(k) match at his tech job. The investments were in moderately aggressive growth funds and a target date fund offered by the employer’s 401(k) plan. We had what we considered a pretty good start at retirement for a couple still in our twenties.
Then we had kids and I stopped working. Shortly after that, Mr. SixFiguresUnder left his job for law school and business school, working part time at best. With low income and high expenses, including tuition, the only way we could have continued making retirement contributions would have been by borrowing the money to do it. So we stopped. In the last eight years we haven’t made a single additional contribution to our retirement. In fact, we’ve paid very little attention to it at all. We continue to get statements in the mail, and we usually just stick them in the drawer without looking at them.
Unfortunately, our timing wasn’t great. We directed a lot of cash into mutual funds in 2006, 2007, and part of 2008, as the market grew by bubble-inducing percentages. Then, just as we headed off for law school, the economy tanked, and our investments went with it.
Sadly, with our income nearly zeroed out, we weren’t able to make any further investments during the low times. While buying high and holding is not quite as bad as buying high and selling low, it still took quite a while for us to see our investments get back to the value of our initial contributions.
Making it Public
So now for the picture. Our retirement consists of:
1. $31,740 -two Roth IRAs, each with the exact same investment mix.
2.$8,887 – a third Roth IRA rolled over from a Roth 401(k).
3. $541 – a traditional IRA rolled over from a traditional 401(k).
$41,168 – our grand total of current retirement savings
As we looked at our IRA statements recently, we discovered that we really have no idea how our investments are doing. I can tell you that we contributed a total of $25,400 to the two Roth IRAs, so our net internal rate of return since inception is 2.90%. I can’t tell you how much we’ve paid in total management fees or how we compare to other investments made with the same timing over the same period. For the rollover IRAs, we don’t even know what our initial contributions were. In short, for all our organization and record-keeping on day-to-day finances, we have been dismal investors.
How Do We Compare?
It’s hard work to compare your investment choices against the other options. A financial manager can do it for you, but she’ll charge you for her time, which will consume some of the profits. Since most fund managers never outperform the S&P 500, would it be best to abandon our portfolio and put our cash into an index fund instead? Who knows?
There are thousands of books, websites, 0nline calculators, and apps that try to help people decide which investments to make. Add the thousands of financial professionals who try to do the same thing, and the amount of available advice becomes overwhelming.
So you follow some advice and make some investments. If you’re making regular, even contributions, it’s fairly simple to compare your results to the major indexes or individual funds.
But how can you see how you’re doing compared to what you could be doing?
Up until now there hasn’t been a good way to compare your investment performance against your peers in order to help you optimize your returns and minimize your fees. In June we found a new app called DRAFT which looks like it will be a promising tool to help us evaluate our investment performance.
DRAFT uses crowd-sourcing to accumulate data on a wide variety of portfolios, including returns, dividends, and management and trading fees to identify the top 10% of investors in each risk category.
When you submit your portfolio information, DRAFT analyzes where your performance falls in comparison to others. Your analysis results are displayed as percentages, but you can touch the dollar sign at the bottom to see the corresponding dollar value.
Seeing a side-by-side comparison of your performance, fees, and asset allocation with that of the top performers allows you to see where you can improve your investment strategy. In each of area you can click to see further details of each comparison. You can even create a blueprint to send to your advisor of the things you’d like to change.
The DRAFT app is intuitive and user friendly, even if you are a novice at investing. If there are terms you don’t know, you can click on the info icon on any screen to get definitions and explanations to help you.
DRAFT isn’t available for everyone to download yet, but the public beta version will be released soon. Join the DRAFT waiting list to be notified when it is available so you can add your portfolio information and see how it stands up against other investors.
Keeping Up With The Joneses
Constantly comparing yourself and your finances to others can be defeating and depressing. Worrying about keeping up with the Joneses can cause financial ruin. When it comes to the car you drive, the size of your house, and the brand of your sunglasses, the Joneses should not be a factor.
As far as investments are concerned, comparing with your peers is a great way to make sure your money is really working for you. Being able to compare our investment returns, fees, and allocations to the high performers will help us see how others are getting the most bang for their buck. We are interested to see how a large crowd-sourced pool of DRAFT data will help us judge the comparative effectiveness of our investment portfolio.
How About You?
- Do you keep close tabs on your investments?
- Have you ever wondered how your returns compare with others?
- Have you ever calculated how much you’re paying in fees?
A special thank you to DRAFT for sponsoring this post. As always, all the words, opinions, and experience are my own. We are excited that #DRAFTisComing soon!