this post was submitted on 25 Oct 2023
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Everyone always quotes the growth of the S&P500, but isn't pretty much no one 100% invested for their entire retirement in the S&P500? My 401k is in a target date 2055 and my Roth is split between FXAIX (S&P500, 55%), FSPSX (international, 20%), FSMAX (extended market, 15%), FXNAX (bonds, 10%). It's a little conservative but not that conservative.
Fidelity says my Roth 1Y returns are 10.8% compared to S&P 500's 10.3%. It says my 1Y returns on my target date 2055 are 18.0%. Neither of those numbers can be accurate so it's hard to know what to read in to them. If I try to calculate my returns in a very simple way (take current value, subtract contributions from the last 12 months, which can be easily looked up, call that number X, then find the growth rate that takes the account value I had as Nov. 1st last year and compound that at different rates until it produces X as of now - this gives an upper bound on returns, since the returns of the various money deposited throughout the year at random times is treated as not growing at all), I get 1%. And that's 1% before inflation.
I know the S&P500 is 10% YoY over really long time scales, and I also know that number is like +/-15% year to year. But it feels like my fund picks are pretty normal yet they're not worth any more than what I put in to them since I started saving. Because of that, I'd have to have a 30+% savings rate in order to catch up to the "X salary by Y age" rule because the assumptions over the growth rate of the accounts are wildly off in the years since I started investing.
Why does it matter if no one else does it? Investing is not a social experience. Most people don't do it because they are uninformed and ignorant about how to manage their money. The easy option is the easy option because you someone else can get more of a cut of your money. You generally pick up to two of these three with any product: good, easy, cheap. The promoted target date funds are usually just easy. They have high expense ratios and are therefore not good or cheap.
I didn't think an expense ratio of 0.08% was considered high?
FXIAX has been pretty much flat for the last couple years. Your 2019-2020 contributions should have nice gains, but they're a relatively small part of your total contributions. FSPSX & FSMAX are pretty flat going back to 2019, with significant declines from 2021. FXNAX has been hit hard by the interest rate hikes. You've had a slow couple of years, without enough accumulation to outweigh them.
That's just the way it goes sometimes. If you look at your returns after a +20% year, it's going to feel great; if you look after a -5% year, it's going to feel bad. Retirement progress, in my experience, having lived the dot-bomb, 9/11, the Great Recession, and Covid, does not feel slow-and-steady; it feels like treading water and then rather suddenly having a credible chance. You put money in slow-and-steady, so that it's invested during those infrequent and unpredictable +20% years. The first year you rack up gains greater than your salary is amazing.
That's a good reminder. Just haven't had one of those years yet. Thanks for the perspective.