Calendar Years Are Arbitrary The author makes a worthwhile point. The “YTD return” a lot of us focus on is based on an arbitrary 12-month Earth year beginning January 1st. I find YTD return a curiosity, but don’t get too bent out of shape when it’s negative. Viewing 3 or 4 successive years’ total returns together yields a better perspective. And when you get out to 10 years and beyond, total cumulative return (often viewed as a yearly average) becomes quite important.
In a sense, we’re locked-in to paying attention to the 12-month calendar year. Not only is it the “language” most analysts and market observers communicate in, but there are some practical considerations. Foremost, Uncle Sam takes notice. He constructs your RMD (if over 70.5) so that distributions must be taken on a yearly basis. If you do a Roth conversion there’s normally a 5-year holding period before gains can be withdrawal penalty free. Income taxes are based on yearly income / gains & losses. In preparing a household budget, the 12-month year is easiest to work with. Some household expenses, like insurance premiums or newspaper subscriptions, come due on a yearly basis. College tuitions may be paid on a yearly or semi-yearly schedule. Expensive vacations (think: sun-belt) are best planned / funded according to the yearly calendar. And our automobiles become one model year older roughly every 12 months - affecting depreciation, resale value and insurance considerations.
So in a nutshell, in terms of significance, YTD and 12-month calendar numbers are pretty baked in the cake and it’s entirely natural for Earthlings to take notice. If you inhabited Mars or one of Jupiter’s intriguing moons you would probably subscribe to some alternative way of viewing short term investment performance.
