2011 Portfolio Investment Performance – Not Too Bad

by Mike Holman

I like to calculate my investment return each year, so I can see how I am doing.

My investment return for 2011 was -1.8%.  While this kind of performance won’t secure my retirement any time soon, I was lucky that the numbers weren’t any worse.

There were two reasons, I did reasonably well.

  1. Low Canadian exposure.
  2. Over weight in cash for a good part of the year.  This wasn’t exactly planned and it cost me money last year.  This year, my mistakes worked to my advantage.

Low Canadian equity exposure

I’m not a believer that Canadians should have a lot of money invested in Canada.  In my mind, this is kind of like buying your employer’s stock.  If they go down – you go down too.  Diversification is my number one goal and that includes having a lot of money outside Canada.

It may seem that it is safe to own Canadian dollars if you live in Canada, but what happens if the Canadian dollar falls and the price of any imports goes up accordingly?  How will you handle that scenario?  I handle it by keeping less than half of my retirement portfolio in Canuck bucks.

My portfolio is loosely based on the Canadian Capitalist’s sleepy portfolio which returned -1.2% this year. I’ve made a few changes from his portfolio and this is what my desired allocation is:

Asset class ETF Target (%)
Bonds XSB 20
Real return bonds XRB 5
Canadian equity XIU 11
US equity VTI 32
International equity VEA 32

Overly high cash allocation

In actual fact, I never had less than about 25% in bonds/cash and had over 50% bonds/cash for most of the first half of the year.  There were two reasons for this – I neglected my portfolio in 2010 and never reached my desired equity allocations, so I started 2011 with too much cash.  Then I did a sizable transfer in to my discount brokerage account at a time when the market seemed pretty high.  I knew I should just buy, but I couldn’t do it and waited several months.  As the market fell, I kept buying.

At this point in time, my portfolio asset allocation is as follows.

Asset class ETF Target (%)
Bonds/cash XSB 27.8
Real return bonds XRB 4.5
Canadian equity XIU 10.7
US equity VTI 29.6
International equity VEA 27.3


The next step

I’ve recently made a couple of extra RRSP contributions (hence the higher cash level).  I will likely make one or two more contributions in the new year and then I will do some rebalancing.  I plan to be more active in 2012 and stay on the asset allocations.

Past returns

Here are my returns from the last six years:

Year Return(%)
2006 14.7
2007 4.1
2008 -17.0
2009 20.24
2010 7.3
2011 -1.8

My annualized rate of return over the six years is 3.87%. At that rate, $100,000 invested six years ago would now be worth $125,560.
The rate of inflation over the last six years has been pretty low at just under 2%, so my annual real return is about 2%, which isn’t great, but isn’t bad either.

Stay the course, regardless of your investment style and save a lot

I’ve done two things well with my investments:

  1. Stay the course – I haven’t sold anything in the last six years and I’ve had more or less the same plan.
  2. Make lots of contributions – I make regular contributions, and some extra when I can.  My investment savings rate is about 20% of our gross income.  This will likely go up now that my mortgage is paid off.


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