Are Your Friend’s Investments Performing Better Than Yours?

May 10, 2007

Are your investments doing better or worse than your friends? Maybe you don’t want to know.

Comparing Investment Returns
There are two money savvy guys at work that I like to talk business and investing with. I discovered yesterday they had a bet on who between the two of them would reach $1 million first. I also found out that both of them were out-performing me in our 401k plan. One guy, Scott, had a 20% return over the last 3 years, the other one, Dan, a 15% return. I went home and logged on to find out that my 401k had a 3 year return of 12%.

Investment Strategies
Of course the next day I asked for more detail on the investment strategy they’d been following. Scott had dumped all his 401k money into our company stock a few years ago and rode it as the stock price climbed. Now he’s out of the company stock, back into index funds.

Our 401k plan has pretty decent options, with about 30 different funds to choose from. Dan had taken advantage of some of the high performing international funds we have available, investing heavily in those for the last several years.

Investing Risk
My work friends have outperformed me because they were willing to take more investing risks. As you can see from the breakdown of my 401k plan below, I don’t hold any company stock and only 19% in international stocks:

22% – Vanguard Total Bond Index
59% – Vanguard Institutional Index
7% – Dodge & Cox International Stock
12% – American Century International Growth

My investment elections are based on the best options for diversification across the funds in our 401k, 403b, & IRAs. If I would have invested in our company stock or heavily in international funds I could have matched their returns but that level of risk doesn’t fit with my allocation & diversification plan.

Hearing their returns makes me wonder if my allocations are too conservative for a 29 year old with a long time frame. On the other hand, I don’t want to go around chasing performance. I hopefully learned my lesson about that during the dot com bust.

Do you share your investment performance with friends, family, and co-workers? If so, does it tend to make you more conservative or more risky in your investments?


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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7 Responses to Are Your Friend’s Investments Performing Better Than Yours?

  • mapgirl

    Yes, I agree, timing the market is a BAD BAD BAD idea. It’s dangerous to time the market for anything more than fun and entertainment, unless of course you make a serious study of it like George does at FatPitch.

    However, being 29 and holding over 10% in bonds is silly too. At this point, in my early 30’s and behind the eight-ball, I decided to go 100% into stock funds for my investment portfolio and ditch the bonds altogether.

    I agree with Lazy Man and Money, you might want to try small or mid cap stock funds to diversify your domestic holdings a little more. I’d sell off 12-17% of those bonds and reallocate to a small cap growth fund. But I’ve had a pretty good run with mine over the last 3 yrs.

  • Jon @ TheMoneyMythos

    I agree that it can be very difficult to stay conservative when you are around riskier investors, especially with the market as hot as it is right now.

    However you do seem to be somewhat conservatively invested for a retirement plan in your 20’s. The bond percentage seems a tad high, and I would think you would want to be in a different Vanguard fund that was more growth oriented then value/blend oriented if you are still 35 years away from retirement.

    That’s just one opinion though! I’m sure you will continue with decent returns with your current portfolio.

  • Ben

    Lazy & invest4life, these are just my 401k holdings, so bonds aren’t 20% of my entire portfolio and I do have small caps in my IRA but I have wondered if I should reduce bonds as a portion of my overall portfolio.

    Art, you make a good point. People take a risk when timing the market. Sometimes it pays off and other times it can lose you a lot of money.

  • invest4life

    When I do hear of how other friends are performing it tends to make me want to take more risks. I guess it is just the competitive side of me coming out, however you bring up a great point about sticking to the asset allocation that fits your investment goals. I would agree with Lazy Man and Money’s comment that you seem to be pretty heavily weighted in bonds for your age. I am in my twenties as well and although it may be a litte too risky, I am not invested at all in Bonds. But that could certainly come back to haunt me when the market takes a large downturn.

  • Art Dinkin

    I don’t know enough about you or your 401(k) to comment on your asset allocation. I can tell you this… It is only a matter of time before your friends crash and burn. TIMING the market will not work in the long run. TIME IN the market will.

    Your friend is playing a game of Russian Roulette with their retirement. Sooner or later the bullet will be in the chamber. Until then, they look like a genius.

  • Lazy Man and Money

    I typically make more risky investments (Prosper, for instance) so I’m not sure if my opinion matters, but you’ll get anyway ;-). I think you should ease up on the bonds at your age. I would probably try to get 20% into small cap stocks – perhaps from splitting the Vanguard Institutional (which I’m not familiar with and too Lazy to look it up) and the bonds.


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