I’ve got a Roth IRA portfolio update for you. It’s been a few weeks since I’ve posted, but that doesn’t mean I haven’t obsessively checked my portfolio every day for the last two weeks. Finance nerd problems..
My portfolio has lagged the market and I’m still a little behind, but I’ve got until the end of the year to make up the difference. My portfolio is a bit overweight financials and underweight FAANG compared to the market, so any dip in those names or rise in interest rates should make up the difference for me. At the beginning of my blog, I mentioned that 95% of active investors can’t beat the market over a long period of time, so I understand that there’s a very real possibility that I don’t this year.
- S&P 500 from January 4th – Aug 1st: +18.91% ((403.15 – 339.03) / 339.03) x 100
- My portfolio from January 4th – Aug 1st: +17.23% ((53,203.01 – 6,000 – 730.03) – 39,641.18) / 39,641.18 x 100
I wanted to end this post with a note about opportunity cost. One of the best things the investment community has taught me is how to think about money in a different way.
Often, when we think about our decisions it’s a classic cause and effect. If we do this, then that will be the outcome. For example, if I save money in a bank account, then I will have more money. If I pay off my mortgage early, then I won’t have to pay off my loan as long and will have less debt.
The first time that I learned about opportunity cost was in a conversation with my dad. We were talking about investing and debt – and he was telling me about the money he had in his retirement account. I was confused about why we didn’t pay off the mortgage sooner with that money, especially knowing we were paying interest.
“Why would I pay down the debt early with an interest expense of 5%, when I could make more with that money in the stock market?”
I was in my teens at the time, but it made me realize the dynamic nature of money. Yes, we would be benefitted by paying off debt that was costing us interest, but there was another opportunity to use that money that historically made more money than we would make by paying off the house early. The opportunity cost was by NOT investing the extra money as opposed to paying off the debt early.
Yes there is always an element of uncertainty with the stock market, but over time it’s returned high single digit annual returns on average. So we could get a return on our investment of a compounded 5% annually or 9% annually – which is better?
I find myself thinking about opportunity cost a bit lately. I’ve got just about $1k on a credit card with zero percent APR for about eight more months and I’m expecting to put a little bit more on it for wedding expenses coming up. Honestly, it feels uncomfortable to me to carry a balance, but the “correct” financial answer is to carry that balance, pay it off slowly and invest/save the extra money coming in.
But, math don’t lie!
Until next time, happy investing!