Has your investment account dropped far more than it should have?

Recently, a 56 year old friend complained about his investment account and he asked me to have a look at it.  As I write this, the U.S. stock market is 20% below where it was one year ago.  And I presumed that his account would be down about 6% or 7%.

But I was amazed to see that his account has dropped 23% from August 12, 2008 to August 12, 2009.  “Did you ask your advisor to put you in an extremely risky account?” I asked.  “No,” he explained, “I don’t know anything about investing, so I just asked her to handle my retirement money.”

This friend doesn’t have a major source of future retirement income.  As an international school teacher, he can’t expect a pension when he retires.  As such, his account should have had a safe, government bond allocation of at least 50%.  Bonds can really save your account when things go south.  And it adds stability for retirees who are withdrawing their funds.

For people without pensions, and who aren’t high risk takers, a responsible allocation of bonds should be an amount that’s equivalent to your age–or close to it.  For example, a 30 year old would have 20%-30% in bonds.  A 50 year old would have 40% to 50% in bonds.

My friend’s Raymond James financial advisor failed to protect his account.  And that’s a shame.

But that might prompt you to ask this question about your own account:  “With the markets still down 20% during the past 52 weeks, what gain or loss should I have expected?”

Of course, that depends on your allocation of stocks and bonds and on the products you’re invested in.

I’ve asked some friends to send me their investment account statements.  Granted, these are friends who invest rather well.  And they aren’t high risk takers, so they follow the general rule of thumb about a bond component that’s roughly equivalent to their ages.

Three of the friends are Americans.  They invest with Vanguard:  www.vanguard.com

One of them is a Canadian investing with the brokerage Q-Trade:  www.qtrade.ca

The remainder use a variety of Canadian brokerages, and they track their investment performances using globeinvestor:  www.globeinvestor.com

Kindly, they have forwarded me their account statements for this entry.  The top account has actually made money over the past 52 weeks.  And the worst account has dropped roughly 9%. What’s important is that all of them have healthy bond allocations, and you’ll notice that none of them are invested in actively managed mutual funds:  just stock indexes, government bond indexes and individual stocks.

Portfolio 1
Investor’s Age: 56 years old
Portfolio return:  +2.6%
August 12, 2008 to August 12, 2009


Portfolio #2
Investor’s age:  34 years old
Portfolio return: down 6.7%
August 12th 2008 to August 12th, 2009


Portfolio #3
Investor’s age:  31 years old
Portfolio return: down 7.3%
August 12th 2008 to August 12th, 2009


Portfolio #4
Investor’s age:  27 years old
Portfolio return:  down 2.5%
August 12th 2008 to August 12th, 2009


Portfolio #5
Investor’s age: 34 years old
Portfolio return: down 4.1%
August 12th 2008 to August 12th, 2009


Portfolio #6
Investor’s age: 34 years old
Portfolio return: down 4.3%
August 12th 2008 to August 12th, 2009



Portfolio #7
Investor’s age: 55 years old
Portfolio return: down 3.8%
August 12th 2008 to August 12th, 2009


Portfolio #8
Investor’s age: 43 years old
Portfolio return: down 9.2%
July 31st, 2008 to July 31st, 2009

Note: This investor did not deposit fresh money into this account during the past 52 weeks.  As such, they were not able to take advantage of low market levels.  And this hurt their overall return.