This is the second in a series where I review my personal finances over the past 25 years (read Part 1). This post is confined to investment return over the last decade, and answers the question: How has my investment portfolio performed compared to the benchmarks?

Note: If you are new to my blog, I hit the million dollar mark about 10 years ago. Read more about me.

BACKGROUND / ASSUMPTIONS

1. I do not use MS Money or Quicken. So my historical data is limited to year-end income statements and balance sheets (spreadsheet-based). As such, some data is approximate.

2. In Part 1, I indicated that -- over the last 12 years -- the value of my portfolio has averaged a compounded annual growth rate of 10.17%. For this post I restate my return on investment to reflect a 10 year period ending June 30, 2005 (10-year benchmarks were easy to find).

3. For this exercise I have subtracted $513,000 from my total net worth as follows:

- - $363,000 deducted to account for the sale of company stock granted through a former employer. This gain is not attributable to investment return.

- - $150,000 deducted to account for net savings over this period. Again, this money is not attributable to investment return.

10-YEAR BENCHMARKS (Period ending 06/30/2005)

- S&P 500 = 9.94%

- Lehman Brothers US Aggregate Bond = 6.83%

- Dodge & Cox Balanced fund = 12.33% (Learn more about funds I own; Read why I like my D&C fund)

RETURN RESTATED

Given the assumptions above, my adjusted 10-year return is 6.71%.

CONCLUSION

To be honest, in the past I’ve focused primarily on top-line growth (i.e. yearly increases / decreases), and not return. If not for this blog, I probably wouldn’t have run this calculation to uncover the fact that my investment portfolio underperformed. So the question now becomes, why did I under perform?

WHAT’S BEHIND THE NUMBERS?

- In my 20s and 30s my investment style was relatively aggressive. But when I hit $1 million about ten years ago, I shifted into "guardian mode". As a guardian, my focus has been on wealth preservation and low-risk growth strategies.

- The indices are pretax. My 6.71% performance is after-tax (part of my portfolio is held in a taxable account).

Note: In future posts, I will look more closely at my personal finances over the past 25 years, and provide commentary on what I did right, as well as where I could have done better.

LESSONS LEARNED

- If I were young and just getting started, I would be well-served to use a tool like MS Money or Quicken.

- While the guardian approach I adopted this past decade helped smooth market fluctuations, it also contributed to my realizing returns that underperformed the benchmarks.

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