Retirement Meditation #21: Is there a difference between investment return and investor return?

Insights | Retirement Meditation #21: Is there a difference between investment return and investor return?

Author: Paul A. Carl, CHSA, CPFA Vice President, Retirement Plan Consulting, Registered Representative

When I was in grade school, I recall my father talking about two stocks – “that one stock” and “this other stock.” He bought “that one stock” in 1974 at $100 per share and sold it six months later for $50. He never bought “this other stock” even though some lunch buddies – brothers that owned a meat packing company – highly recommended it. At least, he didn’t until 2004. I can only assume that his outcome on “that one stock” paralyzed him from purchasing any equities for thirty years.  

Now please don’t think I’m bashing my dad. I loved him dearly. In my eyes he was and will always be a giant among men. What I’m saying is “that one stock” created incredible risk aversion for my dad. Yet, he clearly watched with regret the value of “this other stock” increase steadily over time. So much so that he insisted on its purchase years later. I’m unwilling to name “this other stock” but here are some facts about it:

  • On June 30, 2004, it’s split adjusted value stood at just under $25 per share
  • It’s split adjusted value as of July 1, 1978 was around $0.51 per share (yes, fifty-one cents)
  • Today, it’s value is in the low- to mid-90’s

Risk aversion creates much of the difference between investment return and investor return. Based on research my friend, Luke Axelson at Horan Capital Advisors, provided me - In 2015 and 2016, the S&P 500 Index returned 1.38% and 11.96% despite having negatively-performing weeks 24 times out of 52 in each of those two years. Three of the years, from 2015 through 2021, incurred more weeks with negative performance than in 2018 when the S&P 500 Index lost 4.38%. In 2019 when the S&P 500 Index returned a stellar 31.49%, there were still 18 weeks with negative returns.

So what’s the difference between investment returns and investor returns? Investment returns are what the investments earn over a stated period of time. Investor returns are that portion of the investment return that the investor participates in. 

Are your returns a subset of the investment returns?

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