Once per quarter Mrs. Wizard and I check in on our ROTH accounts and compare them on three metrics:
1) Total Account Value
2) Total Quarterly Return
3) Total Return
Whoever wins two out of three metrics wins the quarter. The loser has to clean the fish tank for the next three months. I started out $1,650 behind in total account value because I put that much in a traditional IRA in 2014, so I couldn’t fund the ROTH with the full $5,500 that year.
The scoresheet is published back at the mother ship.
Neither of us had a particularly great quarter. But I edged out Mrs. Wizard by managing to remain flat.
On a quarterly basis we lost in absolute terms and to the S&P 500. Since I’ve selected quadruple witching as our quarterly day of reckoning, there is some weirdness about SPY’s share price, since that’s the day they go ex-dividend. Last quarter, I looked at two scenarios: either before or after ex-dividend and including a dividend payment as cash (not reinvested) accordingly. Going forward, I’m just picking one way to calculate it, and staying consistent. That way the weirdness should come out in the wash.
In the future, this is how I will calculate the SPY quarterly return:
Take the closing price the day before ex-dividend as the starting and ending point, then add the dollar amount of the dividend paid that quarter as cash to the value.
So for example: this quarter SPY went ex-div on 3/18. We take the 3/17 closing price as our starting point. Had someone bought on 3/17, they would be entitled to the $1.05 dividend paid on 4/29. We’ll assume it was collected as cash. Before SPY went ex-div again on 6/17/16, the price closed on 6/16/16 at $208.37. So:
$208.37 + $1.05 = $209.42 – $204.63 = $4.79 gain / $204.63 = 2.34% gain
Mr. and Mrs Wizard vs the S&P 500 – Quarterly Return 03/17/16 – 06/16/16
In terms of total return, there are two different hypothetical index investments we can compare ourselves to. We funded the accounts on 2/28/15 and 8/17/15, and even though the starting prices for SPY were about the same on those dates, the earlier investment would have gotten two extra dividends.
If I use the end of quarter share price (after ex-dividend), I’m kind of shorting the hypothetical index investments…whatever. Again, as long as I do it the same way every time it should wash out right?
We’ve got the market surrounded on this metric. I’m just barely ahead and my wife is just behind.
Mr. and Mrs. Wizard vs the S&P500 – Total Return as of 6/17/16
I’m not really sure what all this means. I think the whole practice of comparing one’s investments “to the market” is kind of silly for the reasons discussed above. There are all kinds of assumptions built into these hypothetical scenarios. I guess if you can’t “beat the market” then you should hang up your stock pickin’ hat and just buy index funds? IDK…we do it for the fun too.
Comparing returns though seems like the thing to do though on a quadruple witching “day of reckoning”. So I’ll keep doing it.
Me and Mr. Market win this round…sort of.