In this episode of the One of a Kind Financial Show Daily, host Mike Milligan critiques the common practice of quoting calendar‑year index returns (S&P 500, NASDAQ‑100, etc.) as retirement benchmarks. He explains that investors who contribute regularly to retirement accounts (401(k), TSP, SEP IRA, Roth/Traditional IRA) experience a "personal rate of return" that diverges from published index numbers because of dollar‑cost averaging—buying shares at varying prices throughout the year. Milligan illustrates this with a client whose 401(k) target‑date fund showed a 20.09% one‑year return despite the fund’s published 10.07% return, due to contributions made at market lows. He emphasizes that long‑term horizon and consistent investing matter more than trying to time market entry or exit, noting that even top investors and hedge funds rarely succeed at market timing. Behavioral finance is highlighted as a key driver of misperception: optimism, emotional reactions, and misinterpretation of returns can lead to poor decisions. Milligan offers a complimentary portfolio analysis, provides contact information, and promotes his bestselling book, a self‑paced personal financial planning course, and a private community for ongoing education. The segment concludes with a regulatory disclaimer that his statements are opinions, not individualized investment advice, and advises listeners to consult licensed professionals.
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Welcome back to the One of a Kind Financial Show Daily with your host, Mike Milligan. It is Thursday, December 4th, and I wanted to freestyle today. So instead of bringing a segment from the One of a Kind Financial Show, I want to make a very critical point to you that comes from the investment world. Do you know many people will quote returns from the S&P 500, NASDAQ 100, the Capital Aggregate Bond Index, And they will do returns that go from a calendar year, January 1st to December 31st. And then they'll, they'll say those are hard and fast rules about what you can expect in retirement. I, uh, I often use, uh, the Thrift Savings Plan, the TSP, as a guideline for looking at returns because the C Fund, the S Fund, the I Fund, the F Fund, the G Fund, for those of you who are federal employees, are core investments there where the G Fund represents cash. The F Fund represents the Capital Aggregate Bond Index, the C Fund, the S&P 500, the S Fund, the Small Cap Index, the I Fund, the MSCI EAFE Index minus China and a couple of other unfriendly American countries. But, you know, in reality, when people are looking at their TSP statements, whether they order one Mid-month, they get a quarterly statement or a monthly statement. There's something on there called personal rate of return. And there, it never lines up to what is online for the 1, 3, 5, and 10-year. Because here's the thing, when you're actively contributing to a retirement account, whether that's your 401 and you're getting a match, the Thrift Savings Plan, which gets money added to it every other Friday when you're working, uh, if you're adding to a SEP IRA quarterly, right, your employer's adding to that quarterly, or you make, or making one-time contributions a year to a Roth IRA or traditional IRA. See, dollar cost averaging makes a difference on returns. I just recently met with an employee from Dominion Enterprises who was in the target date of a Vanguard target date fund that the 1-year return online showed 10.07%. But Dominion has their 401 with Voya, but on this client's statement, The 1-year return was 20.09%. Well, how could that be possible? Like the fund has returned just over 10, but the client's return's 20. How in the world is that possible? Because over the last 52 weeks, that client had the ability to buy into that fund at the lows for the year, the lows of November, December, January. And then the market went down February, March, into April before it started its ascent back up. And it got back to November levels around June, July of this year, and then it's continued to rise. So those paychecks every 2 weeks bought more units or shares of that target date fund than he had at the beginning of that year period at lower prices. And now with the market setting near all-time highs, that's how he got a 20% return. So let me talk to you about average return on December 4th. Of 2024, the S&P 500 closed the day at 6,089.94. December 3rd, it closed at 6,849.72. I, I may be boring you with the numbers here, guys, but, uh, the numbers just represent some facts. Um, here was the price return, the difference between December 4th and December 3rd, the price return of the S&P 500.
It was 12.5%.
Why is that important? Because as you were adding, if you use an S&P 500 index fund, as you were adding to your accounts in your 401, in your Thrift Savings Plan monthly, you were buying it at values really not between 6,089 and 6,849. Because remember, in April of this year, the S&P went down all the way into the 4,900s. You were buying at different prices all along the way. So although the return, the price return over 1 year may be 12.48%, your return is not going to be exact to that. It's one of the most confusing tools when it comes to investment management and investing. And I wanted to break down something for you today. The financial plan is what matters, right? You Having money invested in the market over a long period of time that matches your time horizon is more important than trying to pick the right entry and exit point of the stock market. Very few people get that right. Very few people, including the greatest investors of all time, Warren Buffett, the great hedge funds that are out there, they, they don't get market timing right. There's a lot of studies out there that show that market timing actually doesn't help performance, but it hurts. And then when you look at behavioral economics, you know what behavioral economics is? It's how you react and how you feel, not only about today, but the future. We are generally all optimistic people, and I love that about the people in the One Oak family. One-of-a-kind people are optimistic. They think they're going to live longer. They think, you know, success is right around the corner, that their family is going to always thrive. But heartache will come, struggles will come, and emotional decisions will come. We're here for you. One Oak, the One Oak Collective, the One Oak financial team, and Mike Milligan are here for you. And if you are interested in seeing how you have performed during the year and having a complimentary analysis done on your either 401, TSP, or other investment assets, including an intersection report, Joseph, myself, Christina, our whole team is here to help. And I'd like to invite you to send a text, ideas@theintersectionreport.com. To 600-700. That's the word ideas, I-D-E-A-S, to 600-700. Or you can call our office, which is 757-909-7151, and ask for a complimentary analysis on rate of return. Because guys, don't always believe what you see posted on CNBC or on any site about return, because you're either plus or minus that, and it really is driven by Behavior. It's behavior about how you feel about money and how you invest it. Put a team behind you to help take some emotion out. So until next time, this has been Mike with the One of a Kind Financial Show Daily. Thank you again for listening to the One of a Kind Financial Show Daily.
I've been your host, Mike Milligan. If you enjoyed the segment that you just listened to, I invite you to connect with us on Amazon. Google The One of a Kind Financial Plan. It's a bestselling book in the personal tax category, and I invite you to do that. Number 2, if you feel like you need more education when it comes to your own personal financial planning, we have a course that's offered through Old Dominion University in Norfolk, Virginia.
It's offered virtually, and it's a self-paced course called Personal Financial Planning that I helped develop and I teach.
It is 6 sessions, 90 minutes each, and full of recordings for you that you can start and stop based on what you need. It goes through the psychology and philosophy of money, the cash management, budgeting, and debt management. We talk about insurance, whether it's property and casualty, like your homeowners, autos, renters, to the type of insurances you work on at, or you need to replace the biggest asset you have, which is your income. Then we move over and talk about, do a real big investment dive into the difference between mutual funds and ETFs. We go all the way from crypto down to individual stocks and bonds from an academic standpoint. Then we look at retirement planning, tax planning, long-term care, and legacy. Ultimately, with the idea that you can build a one-of-a-kind financial plan for yourself. Ultimately though, what it does is it equips you with knowledge that if you're ever in a conversation with a financial advisor or a financial planner, you know the questions to ask. So I invite you to reach out to us. You can go to mikemilligan.com under the Educate tab and see how to register for that. We also put some resources behind that on school.com in our private closed group where you can ask questions and learn more. As always, just remember that I am an investment advisory rep, not only with One Oak Financial, but also Advisory Alpha LLC. Ideas by Mike doing business as One Oak Financial, Mike Milligan LLC, and Advisory Alpha LLC are unaffiliated entities. And thus, all opinions expressed by me and Gary on the One of a Kind Financial Show and me on the One of a Kind Financial Show Daily are purely my opinions and does not reflect investment advice. Please consult with a licensed financial professional before making any decisions. Till next time. This has been Mike Milligan.
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