Rate of Return Trailing Time Frames

Updated: Mar 30



Recently, I was chatting with a client and the subject of investment returns came up. As I was reminding them where we post this information, I noticed some big swings between their year to date return vs. their 1-year return.


After my advisory firm's management fee, they were showing a performance return of 4.4% over the previous 1-year & a 14.6% return year to date (10 months exactly).


This particular client is invested in our Fossil Fuel Free investment model, which is a low cost, globally diversified portfolio (without some energy sector of course). The relatively big performance swing wasn't a result of anything exotic we're doing in the portfolio. What's really driving the different performance numbers is the volatility of the market.


All of this got me thinking of how incredible it is that only a two-month adjustment could produce such a different rate of return. If I would've had a performance conversation with this client at another point in time, would the performance numbers have looked so different?


Probably so!


This concept of investment timing brings up a few important lessons investors should keep in their back pocket.


First and foremost, judging any investment strategy over such a short time frame is meaningless. As we saw earlier, changing the time frame by just two months produced a large performance discrepancy. Things can change quickly. If this client would have called me 10 months ago freaking out wanting to swap to a more conservative portfolio, they would've missed out on earning 14.6%!

Second, if you invest in a passive strategy like Index Funds that track the market (you should be doing this), your return is going to be whatever the market delivers minus cost. In a sense, it's quite liberating in that you no longer have to constantly evaluate whether the fund manager is trading the right stocks at the right times anymore. Whew, one less thing!


Third, there is no free lunch with investing. If you want to achieve a return that outpaces the eroding effects of taxes and inflation, you must accept volatility. Volatility refers to the natural ups and downs of the market. One of your biggest "costs" with investing is the fact that you have to deal with watching your balance fluctuate. Recognize that this is an emotional cost. It only becomes a real cost when you abandon your strategy and sell.


Fourth, you can't time the market. No one is smart enough to consistently outguess the collective wisdom of millions of other investors. While there are plenty of financial experts that like to think they have some secret sauce, the research confirms that the vast majority of money managers fail to beat their benchmarks over time*.


Last, you have to exercise patience. Not one of my clients is planning on depleting their investment portfolio in the next year, or five years for that matter! As investors, we're in this for the long haul. That means a time frame of at least a few decades. Getting hung up on what happened yesterday, last week, last month, last quarter, or even last year detracts from your long term goal.


Investment performance can turn on a dime. What looks like an unbelievable strategy over one time frame can at the same time appear lackluster over another. It doesn't necessarily mean the strategy is good, bad, or neutral. It simply means you're investing and large, short term fluctuations up or down are completely normal.


If you'd like to learn more about Aspen Leaf Wealth Management, our sustainable portfolio options, our opportunistic rebalancing process, or what it's like working with us, please click the Contact link in the upper right corner.


We would love to hear from you and chat about how we can improve your investing experience.



* SPIVA Statistics & Reports, click HERE for additional information.


cfp-logo-solid-gold-outline.png
Green America.png
FPA.png
Good Business Colorado.png
ASBC Logo.png

Aspen Leaf Wealth Management, LLC is a Fee-Only Registered Investment Advisor (RIA). We are based in beautiful Golden, Colorado and regulated by the Colorado Division of Securities.

14143 Denver West Parkway, Suite 100
Golden, CO 80401
720 593-4660