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The year to date return on my IRA is currently 5.3%, the DJIA is 9.5%, and the NASDAQ is at 7.7%.

Is this normal or should I be disappointed? I'm just starting to pay attention to this kind of thing, and I'm not sure how to judge the performance of my money manager.

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    Could you elaborate on what you're invested in: stocks? index funds? actively managed funds? What portion is in bonds, money market, cash, as opposed to straight equities? – Chris W. Rea Jul 22 '11 at 20:03
  • In order to judge your return, we need to know a lot of things, mostly what you are invested in, and why. If for example you are close to retirement, and have shifted a good portion of the IRA holdings to fixed income instruments in order to protect your capital, then we would not expect your return to track the 'market' for equities. – Chuck van der Linden Jul 24 '11 at 9:17
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    BTW the DOW is a tiny index, it's really not that useful to compare with unless your holdings are strictly very large cap companies. S&P500 or Russell 3000 are much better representatives of the market as a whole – Chuck van der Linden Jul 24 '11 at 9:19
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    Thanks for all the comments and answers. It feels like the jist of what everyone is saying is that the stock indexes are not a good comparison in the first place, and I need a better understanding of what's in my portfolio before trying to evaluate it (although, 10% is in the ballpark). I'll dig deeper and do a little research. – Dan Williams Jul 25 '11 at 14:20
  • to the degree that an index reflects the investment style for the equity portion (or a sub-part of that portion) of your IRA, then it can be appropriate to use for comparison. See the answer I provided below for details. But it's very rare for a single index to be comparable to and entire IRA – Chuck van der Linden Aug 1 '11 at 17:29
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There is no typical return for an IRA. Understand that an IRA is not an investment type, it is just an account that gets special tax treatment by the Federal Government.

The money in the IRA could be invested in almost anything including Gold, Stocks, Bonds, Cash, CDs, etc. So the question as phrased isn't exactly meaningful. It is kind of like asking what is the typical price of things if I use $10 bills.

As for a 10.6% annualized return on your portfolio. That's not a bad return. At that rate you will double your investment (with compounding) every 7.2 years. Again, however, some context is needed. You can really only evaluate investment returns with your risk profile in mind. If you are invested in super safe investments like CDs, that is an absolutely incredible return. You compare it to several indexes, which is a good way to do it if you are investing in the types of investments tracked by those indexes.

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To me it looks pretty good (10% per year is a pretty good return). Lagging behind the indexes is normal, it is hard to beat the indexes over a long period of time, the longer the period - the lesser the chances to succeed.

However, half a year is a relatively short period of time, and you should check your investments a little bit deeper. I'm assuming you're not invested in one thing, so you should check per investment, how it is performing. If you have funds - check each fund against the relevant index for that fund, if you have stocks - check against the relevant industry indexes, etc.

Also, check the fees you pay to each fund and the plan, they come out of your pocket, lowering the return.

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To try and address your 'how' it goes a bit like this.

You need to first assess how your stuff is invested, if for example half is in stocks, and the other half is in bonds, then you will need to calculate a 'blended' rate for what are reasonable 'average return' for both. That might mean looking at the S&P500 or Russell 3000 for the stock portion, and some bond index for that portion, then 'blend the rates', in this case using a formula like this

(R3000_return * .5) + (bond_return * .5) = blended rate

then compare the blended rate with the return in your IRA.

It is generally a lot more useful to compare the various components of your total return separately, especially if you investing with a particular style such as 'agressive growth' or you are buying actual bonds and not a bond fund since most of the bond oriented indexes are for bond funds, which you can't really compare well with buying and holding bonds to maturity.

Lets say your stock side was two mutual funds with different styles, one 'large cap' the other 'aggressive growth'. In that case you might want to compare each one of those funds with an appropriate index such as those provided by Morningstar If you find one of them is consistently below the average, you might want to consider finding an alternative fund who's manager has a better track record (bearing in mind that "past performance....")

For me (maybe someone has a good suggestion here) bonds are the hard thing to judge. The normal goal of actually owning bonds (as opposed to a fund) is to retain the entire principal value because there's no principal fluctuation if you hold the bond to maturity (as long as you choose well and the issuer doesn't default) The actual value 'right now' of a bond (as in selling before maturity) and bond funds, goes up and down in an inverse relationship with interest rates. That means the indexes for such things also go up and down a lot, so it's very hard to compare them to a bond you intend to hold to maturity.

Also, for such a bond, there's not a lot of point to 'switch out' unless you are worried about the issuer defaulting. If rates are up from what you are getting on your bonds, then you'll have to sell your bond at a discount, and all that happens is you'll end up holding a different bond that is worth less, but has higher interest (basically the net return is likely to be pretty much the same). The better approach there is generally to 'ladder' your maturity dates so you get opportunities to reinvest at whatever the prevailing rates are, without having to sell at a discount.. anyway the point is that I'm not sure there's a lot of value to comparing return on the bond portion of an IRA unless it's invested in bond funds (which a lot of people wanting to preserve principal tend to avoid)

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Do you want to retire? If so, when? How long do you expect to live? How much per month in today's dollars do you want to have at your disposal when you reach that age?

Once you've answered those questions, then you'll be in a better position to say whether you should be disappointed or not. But the fact that you don't know indicates that you haven't looked into these questions yet.

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