2011 Portfolio Investment Performance – Not Too Bad

by Mike Holman

Welcome to Money Smarts! If you're new here, please read the "About" page to find out more about this site. If you would like to receive updates by email then sign up here or you can subscribe to the RSS feed. Thanks for visiting!

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.

 

Be Sociable, Share!

Want to learn more about RESPs? Buy The Book:

Resp-Book

The RESP Book: The Simple Guide to Registered Education Savings Plans

Everything you need to know about RESPs.

See it on Amazon now

Welcome to Money Smarts! If you're new here, please read the "About" page to find out more about this site. If you would like to receive updates by email then sign up here or you can subscribe to the RSS feed. Thanks for visiting!

{ 9 comments… read them below or add one }

1 Daftster

Hi,

How do you calculate your performance? does it include dividends? For example, i invested 10,000 and the current market value let’s say is 12,000, but there was a dividend of 500. is it based on 10K or 10,500?

Thanks!

2 Mike Holman

@Dafster – Yes, I include dividends.

3 My Own Advisor

Hey Mike,

Why no REITs or REIT ETFs?

I was surprised to see your low exposure to Canada but I understand your rationale.

Even though we all have different investment plans and strategies, sounds like you’re doing the most important thing: sticking with it. Nice stuff.

Mark

4 Mike Holman

Hi Mark.

I used to have REITs, but I decided to sell them mainly because I had such a small (5%) allocation and didn’t think it was worthwhile.

I considered increasing the allocation to 10%, but I wasn’t comfortable since I don’t really understand REITs all that well and wasn’t sure if I wanted that high an allocation.

That’s probably not the best logic for selling an asset, but that’s my story. :)

5 Echo

Blame Canada, eh?

It actually looks like your international equity (VEA) was a bigger drag on returns than your Canadian equity (XIU) was. VEA was down 12.28% and XIU was down 9.87%.

If those allocation were reversed, you might have broken even this year. ;)

6 Mike Holman

@Echo – I have to blame somebody. It certainly wasn’t my fault. :)

Yeah, VEA was the main reason for the loss. I actually had very little Canadian earlier in the year so if anything, I might even have a gain for XIU on the year.

Whatever – a single year return is pretty much meaningless.

7 BeatingTheIndex

Mike, not a bad return at all relative to the index and the best part is you did not break a sweat when volatility was wrecking havoc. Good stuff overall and compares with my indexed RRSPs.

8 The Passive Income Earner

Considering you have set targets, do you re-balance every year or per quarter? I have automatic re-balancing with my employer’s defined contribution plan. I find that it’s a good way to sell high and buy low and still maintain the strategy.

9 Mike Holman

@PIE – In theory, I should be rebalancing with new contributions, since I contribute every month. I plan to do this in 2012.

If the monthly contributions aren’t getting the rebalancing done, I would probably try to rebalance using sells/buys maybe twice a year.

Leave a Comment

Current day month ye@r *

Previous post:

Next post: