Thursday, January 1, 2009

System Outperforms the Market

Well, the New Year's party is over. Time to plug some numbers into the spreadsheet and see how my 401-k performed this year. I admit to some trepidation...the market has been so wild this year, the carnage so widespread, is it possible my system failed me this time?

I guess it was inevitable... I'm down big time this year. But, with the help of the year end rally, the news is not as bad as it felt. For those who are not familiar with this blog, I use a system I call "Dollar Cost Averaging on Steroids" to manage my 401-k. (You can read about in in earlier posts if interested). The claim I've been making is that it virtually guarantees "beating the market."

The bottom line...I beat the weighted average of the markets I invested in for the 9th straight year. For 2008, I'm down 25.1%, while the weighted average of the markets was down 28.3%, consistent with the results from previous years, when I've beat the market by 2-4% per year.

Okay, so a loss of more than 25% is not exactly what you hope for each year. But, the 2-4% per year outperformance over the long term is huge, more than doubling your nest egg over your career, and redoubling it during a typical retirement. That's enough to make difference between happy early retirement and slogging away for extra years and worrying about running out of money.