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 $437.75. Slowly but steadily, I’ve continued to chip away at that difference, and it’s now down to $339.53. Maybe I’ll be able to pass her someday!

So, Mrs. Wizard still has the higher total account value, but per the rules of the competition I continue to maintain possession of the proverbial yellow jersey.

This quarter I BARELY edged her out in quarterly performance (11 basis points), and still hold a comfortable lead in total returns.

Until now we’ve struggled to keep up with, much less outperform the S&P 500. But, as you probably heard, Mr. Market puked on his shoes last quarter. Quarter over quarter we both managed to beat SPY by 90 and 79 basis points respectively.

The difference was enough to bridge the gap for me in terms of total returns, although Mrs. Wizard continues to trail the SPYder in that category. 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 (12/20/18)

Dividends Paid

Quarterly Return

SPY 09/20/18

$293.58

$247.17

$1.323

-15.36%

Mr. Wizard

$32,563.85

$27,855.19

Included in ending price

-14.46%

Mrs. Wizard

$33,001.60

$28,194.72

Included in ending price

-14.57%

Mr. and Mrs Wizard vs the S&P 500 – Quarterly Return 09/20/18 – 12/20/18

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 5.21555765 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

The additional 0.21555765 shares come by reinvesting dividends along the way (this assumes we buy shares at the opening market price the day of the dividend distribution).

Those 5.21555765 shares were worth $240.71/share on the December 21 close (a total of $1,255.44). That represents a total gain of $85.23 or 7.28%

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

$1,255.44

+7.28%

Mr. Wizard

$25,850

$27,855.19

+7.76%

Mrs. Wizard

$27,500

$28,194.72

+2.53%

Mr. and Mrs. Wizard vs the S&P500 – Total Return as of 12/21/18

When we took the snapshot last quarter Mrs. Wizard and I were “trailing” the market by 10.45 and 4.49 points respectively.

This illustrates why I’m such a proponent of stock picking over index investing. There’s a lot of garbage in the S&P 500. The Fed-fueled bubble of everything that has blown up over the last decade is not going to last, and the garbage is going to get hit a lot harder than quality companies. I would rather try to pick out the quality companies and “trail” the index when Mr. Market is smoking crack, thank you very much.

It also illustrates why I’m so focused on our investment income for retirement rather than total account value. In the course of three months our accounts (as well as SPY) lost a ton of value for no apparent reason.

If you have to sell off bits of your portfolio to generate your investment income in retirement, you’re suddenly selling much bigger bits of a relatively smaller portfolio.

Fuck that.

Here’s another interesting table:

“Index”

Total Invested

Projected Annual Income

“Invested Yield”

SPY

$1,170.21

$22.08

1.89%

Mr. Wizard

$25,850

$1,289.16

4.99%

Mrs. Wizard

$27,500

$722.11

2.63%

So while we may just be keeping up with SPY in total returns, a greater proportion of those 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 still comfortably 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 a matter of flipping the switch to spending rather than reinvesting the dividends.

No market timing necessary!

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