Day of Reckoning – ROTH Competition Update

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 here at the mother ship.

At the end of last quarter, I had narrowed the gap from the original $1,650 handicap mentioned above to $581.15. I’ve continued to chip away at that difference this quarter, and it’s down to $437.75. So, Mrs. Wizard still has the higher total account value, but I’ve continued to edge her out in quarterly and total returns. We’ll see if that continues.

We were not able to beat Mr. SPYder in terms of this most recent quarterly return. The market has been on an absolute tear in September and we haven’t deployed any of our contributions yet, so we’ve been sitting in quite a bit of cash, while the S&P has been ripping to new all time highs.

The market also continues to outperform us both over the long run, although I am staying fairly close on the total IRR calculation. Comparing our total returns to SPY is stupid, but I keep doing it for some reason.

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 it goes ex-dividend. There are a couple different ways I could address the weirdness. Eventually I decided to just pick one. That way it should just come out in the wash.

So this is how I run the quarterly comparison: I take the closing price of SPY 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.

“Index”

Starting Price

Ending Price (09/20/17)

Dividends Paid

Quarterly Return

SPY 06/14/17

$277.48

$293.58

$1.246

+6.25%

Mr. Wizard

$25,773.01

$32,563.85*

Included in ending price

+5.01%

Mrs. Wizard

$26,354.18

$33,001.60*

Included in ending price

+4.35%

Mr. and Mrs Wizard vs the S&P 500 – Quarterly Return 06/14/18 – 09/20/18

*It’s important to note that we funded our accounts on August 17, so the quarterly return represents the gains from investments with the $5,500 in contributions backed out.

In order to compare ourselves to the SPY for total return, I’ve decided to use a total “internal rate of return”. In other words I calculate how many shares of SPY we would hypothetically own if we had bought one share of SPY (closing price) on the “investment dates” (days we funded our accounts), and then dividends were reinvested.

So since we started tracking all this, we would have hypothetically ended up with 5.19018682 shares of SPY by buying one share on each of the following five dates (when we made ROTH contributions):

Date of ROTH Contribution

SPY Closing Share Price

February 28th, 2015

$210.66

August 17th, 2015

$210.59

August 16th, 2016

$217.96

August 16th, 2017

$246.94

August 16th, 2018

$284.06

TOTAL “INVESTED”:

$1,170.21

Meanwhile we would have accumulated the additional 0.19018682 shares by reinvesting dividends along the way (this assumes we buy shares at the opening market price the day of the dividend distribution).

Those 5.19018682 shares were worth $291.99/share at Friday’s close (a total of $1,515.48). That represents a total gain of $345.27 or 29.51%

Look over to the right of the competition tracker published here at the mother ship for more details. I can’t promise that it’s easy to figure out, but I can promise that the math’s all there.

“Index”

Total Invested

Ending Value (including dividends)

Total Return

SPY Total IRR

$1,170.21

$1,515.48

+30.46%

Mr. Wizard

$25,850

$32,563.85

+25.97%

Mrs. Wizard

$27,500

$33,001.60

+20.01%

Mr. and Mrs. Wizard vs the S&P500 – Total Return as of 09/21/17

So after three and a half years Mrs Wizard and I are “trailing” the market by 10.45 and 4.49 points respectively.

Some of that underperformance is partly explained by the fact that we’ve both had significant periods of time where we’ve held major cash positions in our accounts waiting for good entry points into our stock positions. The SPY comparison is, by definition, a 100% equity allocation all the time.

Thou can’t time the market, so thou shalt not try to.

Of course it could also mean that we’re not good enough at picking stocks to “beat the market”.

I’ll take it, though. Here’s another interesting table:

“Index”

Total Invested

Projected Annual Income

“Invested Yield”

SPY

$1,170.21

$25.76

2.20%

Mr. Wizard

$25,850

$1,067.14

4.13%

Mrs. Wizard

$27,500

$717.89

2.61%

So while we may be trailing the S&P500 in total returns, a greater proportion of our returns are coming in the form of reliable dividends as opposed to imaginary cost basis bucks (share price appreciation).

The truth of the matter is, that I don’t care that much about “beating the market” in terms of total returns. The goal is to build a stable, growing passive income stream, and in that respect, we’re well ahead of Mr. SPYder.

Remember: you can’t spend shares at the grocery store.

For now, we’re reinvesting that income stream because we’re still in the accumulation phase; however, when it comes time to start living off of that income, it’s simply matter flipping the switch to spending rather than reinvesting the dividends.

No market timing necessary!

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