1.FOOLED BY NUMBERS
When you start to understand the game you become more sceptical about people constantly bragging about their methods and rate of returns. Sometimes they don’t even need to show their return numbers to have a lot of followers that don’t question those figures or their incongruencies and if there are better ways to participate in the markets.
This year I decided to honour those “two digit figures” braggers by becoming one of them and saying to you, few fellow followers, that through my magnificient method and outstanding capabilities in 2014 I achieved 48.58% rate of returns.
Wait…wait…that number was achieved because I’m counting with new add money for buying assets purpose. Although it is a true number, because my portfolio value grew that much, it was due to add money from my savings.
This is a fair observation. I’m really bragging, but those number are unrealistic.
So looking for the NAV in my broker account, in 2014, my returns were still impressive with an increase of 17.16% .
Wait…wait…that number is only achieved because my main currency is in EUR and my assets are in USD. This pair’s valuation was great for dollar assets and only because of that I achieved so great returns. For me, that use euros in my daily life it was a great value increase. Nevertheless, I’m a naturally bragging again.
Well I only have two more number left for my 2014’s rate of returns, but those are just ok and they are not to great to brag about. The first one was the total return of my portfolio in USD, which was 4.92% and if I consider new entries over the year I’ll end up with a rate of return of 4.36%, which is still better than the average of active investors.
So don’t let you fool by numbers and braggers. All that rate of returns are true in someway, you can pick your favorite or just ignore my returns and focus on yours.
What I can say is, I’m glad with my 2014‘s results, after all my portfolio’s value more than recovered the losses of short-term madness.Follow @TridionTrader
Now if you were just lucky to have your investments in the U.S. Then, I agree with your last number. However, if you did some research that the Euro was going to go down in value,then I disagree. If you traded currencies on the forex market and made money wouldn’t you consider it part of your investment return? Will you not have to pay tax when you convert back to Euros? I just converted some more of my Canadian dollars into the U,S. Dollar. Why, because I believe that Canada’s currency is going to go down some more. The currency market is the largest trading market in the world and shouldn’t be discount. You are right, numbers can be inflated.
Although I’m a know-nothing investor I try to consider all factors that involve my portfolio management. In short term, currency is also extremely important and therefore I tried to have more USD instead of EUR in my account. But because I have multi-assets portfolio with geographic diversification, before USD started its bull run my portfolio had 8% rate of return. So If we have a strong USD all my non-USD based assets will underperformance. On the other and if we have a strong EUR I’ll buy more USD based assets. In a 30 years investment period this will matter less and less…
Cheers and have a great weekend.
Yes, you are right, over a 30 year investment period currency will matter less and less. However, many new to investing do not diversify outside of their domestic market. Sometimes the biggest risk to your portfolio is your government.
Government risk is something that in Portugal we quite understand, but I only have US bonds.
You are smart after all. You should consider changing your blog title to
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You’ve said that your portfolio was similar to Portfolio P1 (enriquecer devagar)
know-nothing investor portfolio
What’s wrong ?
Those numbers were calculated by Morningstar.com and you’re right, they are not including dividends. So instead of 2.19% and 3.07% I have 4.36% and 4.92%. Rebalancing and bad market timing should explain the rest. I will correct the post.
PS- I just have been fooled by numbers 🙂