Numbers That Are Accurate, But Inaccurate

My guess is that a fairly low percentage of people have monitored their investment performances over the past decade or more, and compared their results to a suitable benchmark. 

And those who have made long term comparisons, I believe, rarely compare to what they should.  If you have a global portfolio with bonds, then comparing to the S&P 500 isn’t going to cut it: you won’t be comparing apples to apples.  You’d need to compare to a portfolio of international indexes with bond indexes relating to the country your fixed income investments are derived from.

 For example, if you have any bonds at all in your portfolio, I can virtually guarantee that you’ve beaten the S&P 500 index over the past ten years.  The markets have gone sideways, but your bonds have churned out interest over that time.  Advisors comparing accounts over the past dozen years to a full equity index (like the S&P 500 index) are trying to pull the wool over their investors’ eyes.  Investors without advisors, who are doing the same thing, are pulling the wool over their own.

Through the investment club I manage, we made dollar for dollar comparisons automatically with the S&P 500.  We buy purely U.S. equities, so we compare purely with the U.S. index.  Because each member owns a different percentage of the portfolio, we have to monitor investors’ deposits, stock purchases and stock sales—and we do it easily, thanks to an online investment club portfolio organizer called Bivio.

But even our performance numbers can be accurate, but inaccurate.  Let me explain.

According to Morningstar, $10,000 invested in the S&P 500 index on October 7, 1999 would be worth $11,592 on January 28th, 2011, for an overall gain of 11.59%, representing roughly 1.3% annually over 11.5 years. 

Current Principal:

10, 000

Annual Addition:


Years to grow:


Interest Rate:


Compound interest: 1 time(s) annually

Additions at:  START / END  of each compounding period

Future Value:


Now let’s go back to that investment club I was talking about. 

We started the club on October 7, 1999, and we constantly added money to it.  As such, when the markets dipped and flew, we added more money during dips and less when it was flying.  As the fund’s chief, when markets crashed, I sent out emails practically threatening members to toss large sums into the club’s account.  When markets rose, I didn’t say much at all.  And thankfully, the group responded to my harassments…mostly!

This brings me to that benchmark again.  How have we done, compared to the S&P 500 index?  I’ve already written, in recent posts, that we’ve compounded our money between 8% and 9% annually.  Does this mean that we have beaten the S&P 500 index by 7% to 8% annually?  Absolutely not!

You see, if we threw money into the S&P 500 index at the exact same time we threw money into the investment club (being greedy when others were fearful) we wouldn’t have made 1.3% annually on our S&P 500 investment, we would have made 5.7% annually on that investment during that time period.

Performance Benchmark – 07/10/1999 – 30/01/2011

(Vanguard Energy Index FD ADM (VENAX) – using prices from market close for 29/01/2011)



Maniacle Members of the Mausoleum



Vanguard 500 Index Fund (VFINX)



The program we use to track the investment club’s performance ensures—with this kind of comparative tracking—that the right kind of comparison is made.  As of today, our annual advantage over the S&P 500 amounts to 2.8% annually over the past 11.5 years, or 35% overall.

Not so impressive now, is it?

Will we maintain that advantage over the next 20 years?  Many proponents of active management would suggest that we might.  But we probably won’t.  The likelihood is that we’ll eventually get caught by the relentless index….which eventually force-feeds the proudest of investors with massive doses of humble pie.

As for my own investments, I haven’t tracked them accurately, as they relate to the right kind of global benchmark over the last 11.5 years. 

But I do know that I’ve beaten the investment club pretty handily.  When markets dove, I didn’t have to harass anyone to throw money into the stock markets for me.  I was able to do it myself.  And when they really tanked, I was able to sell bonds to do so. 

That said, I would guess that I’ve compounded money at roughly 10-11% annually since 1999. 

But then again, I’ve never met anyone who understated their investment returns.  Have you?

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School and Millionaire Expat: How To Build Wealth Living Overseas. My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions.

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3 Responses

  1. Echo says:

    I think that most investors either don't understand or don't know how to calculate their returns when including the addition of new money, especially when they add new money periodically throughout the year. So you're right, they will overstate their returns because they are including new money as part of the overall return (new contributions, not dividends).

    By the way, who came up with the name for your investment club? Are you the most maniacle member of the bunch?

  2. Hey Echo,

    I read that the Beardstown Ladies counted added money as an investment profit. Funny. We have an easy way of keeping track with Bivio. Fresh money at the right time can definitely lower cost averages and increase returns during recoveries, in the process.

    As for that investment club name, it was created by a guy named Grant Ashlee. I'm actually the mellow one of the group!

    And I've already teased Grant for his inability to spell "Maniacal"

  3. Robber Baron says:

    Somebody ought to come up with an Excel "form" that allows us to enter data in a simple way — date, ticker, type of transaction (with both "dividend reinvestment" and "dividend paid but not reinvested" as options, as well as cash transactions), amount of the transaction, and perhaps "notation" which would then present a variety of reports.

    These reports might include

    — total capital invested ("fresh money")

    — growth rate from dividends

    –capital appreciation as of a certain date where all ticker values have been registered (perhaps automatically fed through an updating link off google finance or something?)

    I've seen a few cumbersome things presented on the internet, but nothing that was simple and easy to use.

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