2010 Personal Investment Portfolio Returns For My Canadian Couch Potato Portfolio

by Mike Holman

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I finally got around to calculating my investment returns for 2010 and the results are decent, if unspectacular: 7.3%

My portfolio is supposed to look something like Canadian Capitalist’s sleepy portfolio which returned 9.56% this year.  I’ve made a few changes and this is what my desired allocation is:

Asset class ETF Target (%)
Bonds XSB 20
Real return bonds XRB 5
Canadian equity XIU 15
US equity VTI 30
International equity VEA 30

The only problem is that my portfolio doesn’t look like that. Over the last two years, I haven’t rebalanced or made very many purchases.  I guess you could say that I’ve gone from passive investing to neglectful investing:)

As a result, my cash position is probably around 15%, which is why my returns trailed the sleep portfolio so much.  I also have a higher foreign content and with the Canadian dollar and market doing so well – that results in my portfolio not doing so well.

The next step

My plan (once I finish my taxes) is to rebalance all our investment accounts, so that they look something like the allocations shown in the table.  I’m going to make sure that I do more frequent purchases as well.

Past returns

Here are my returns from the last five years:

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

My annualized rate of return over the five years is 5.05%. At that rate, $100,000 invested five years ago would be worth $127,861 now.
The rate of inflation over the last five years has been pretty low at just under 2%, so my annual real return is just over 3%, which I’m quite happy with.

Stay the course, regardless of your investment style

I’ve done two things well with my investments:

  1. Stay the course – I haven’t sold anything in the last five years and I’ve had more or less the same plan.
  2. Make lots of contributions – I make regular contributions, and extra when I can.

I had an interesting conversation with Dan Bortolotti from Canadian Couch Potato, a while ago and one of the topics we discussed was different investment strategies.  Although we are both die-hard couch potatoes, we agreed that most (reasonable) investment methods are just fine as long as you stay the course and keep making contributions.

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{ 17 comments… read them below or add one }

1 Sunny

May be unspectacular, but at least, you didn’t lost the initial capital invested. So congrad ;)

2 omagh

If you can, the transaction costs and management expense ratios (MERs) on the ETFs should be part of your tracking. Then the net return is more properly calculated. Even a 1% per year MER is a sizeable bite of the portfolio.

3 Mike Holman

Thanks Sunny – so far, so good.

4 Mike Holman

@omagh – What makes you think they aren’t?

All returns posted are net of all fees.

5 Mike Piper

“I guess you could say that I’ve gone from passive investing to neglectful investing.”

John Bogle calls it “benign neglect.” And depending on who you ask, it isn’t entirely bad. :)

6 Mike Holman

@Mike – “benign neglect” – haha, that’s a good one! :)

7 Mike Piper
8 Mike Holman

Thanks Mike. Believe it or not, I’ve never read any of Bogle’s books. Need to fix that.

9 Mike Piper

Others will disagree, but, having read three, I found one to be enough. Each of the three I read were very similar (though excellent). The idea being to provide a mountain of data to absolutely demolish the idea that investing in actively managed funds is wise.

The Little Book of Common Sense Investing is my top recommendation of his. It single-handedly won me over.

10 Canadian Capitalist

Thanks for the mention Mike! Canadian markets have outperformed for so many years now. This trend will end sometime. No idea when though.

11 Echo

I agree with staying the course, your returns are not great but they are better than if you were jumping in and out of the market. Perhaps your benign neglect was a good thing, getting you through the past few volatile years with solid gains. Rather than pulling out of the market at the bottom and parking your money in GIC’s, you were able to recover from the losses of 2008 by staying invested. How did you manage to tune out the noise?

12 Mike

@Echo – The most effective weapon against market volatility has been education.  Reading the Four Pillars of Investing by Bernstein along with A Random walk on Wall Street by Malkiel, to name two books has really educated me that the market will go up and down, but mostly up in the long run.  Trying to time it (by panicking or for any other reason) is futile.

I also find that keeping track of annual returns helps.  When I got -17% in 2008, I was able to look at my 2006 and 2007 numbers and know that over the three years, things weren’t that bad.

13 Evan

I am not sure if you have the ability but can you check out what would have happened if you rebalanced 2 or 4 times (every 6 months)? Would you be ahead or would benign neglect have benefited you?

14 Mike Holman

@Evan – I think if I had been on the ball, my 2010 return would have been about 1% higher or maybe even 1.5%.

Not the end of the world, but I need to learn my lesson and keep on top of things a bit better.

Mike

15 Ronald R. Dodge, Jr.

Every year at this time, I look at my accounts to see if they need to be rebalanced. If the percentages are far enough out of range, I will then rebalance.

As for the 401(k) plan, I’m not the greatest fan of it cause of the fact the performance on it has been about 2% laggard reletive to market benchmarks. As such, I am making the assumption between the posted MER in the prospectus (they claim it 0.50% or 0.75% depending on the fund) and the hidden 12b fees as allowed by regulation, it works out to be about 2% total management fees per year. As such, I track the performance of the 401(k) plan separately from all of my other investments.

All other investments for the most part trended about 1% higher than market benchmarks, including during the bad years (yes, when the stock market plummeted, so did my stuff, though not quite as much). By using benchmarks, that’s what allowed me to keep my cool about things as the market has it’s ups and downs. The year of 2010 though was a very unusual year for me personally. All of my investments outside of the 401(k) plan had an average return of 28.83%, which was far higher than the market’s return of 12.80%. I’m not really sure if it was something I did or if it was just something that was just by the luck of the draw, but then only time will tell. Based on past trends, it would appear to be more so luck in this case.

While the stock market hasn’t fully recovered, I personally have fully recovered my high that was in Oct 2007, and then some. Even the share prices on my investment accounts has recovered. I use share prices specifically to take into account of contributions and withdrawals (if any), so as the true performance aren’t skewed by such finance activities. While the share prices won’t directly match up to any of the investments that’s in such accounts, they act pretty much like the NAVs on mutual funds, except of course, I’m not going to artificially going to drop the share price to reduce the account values like managers of mutual funds will do to the NAV as their fees.

16 Ronald R. Dodge, Jr.

As for staying the course and making lots of contributions, I am definitely staying the course, and as for contributions, contributions only accounts for 2 of 3 countable savings, rather it be net contributions into retirement funds or net contributions into emergency funds. The third countable savings is net debt reduction (or what I like to call installment debt as current debt is also a type of debt, but a type that isn’t likely to go away unless you plan on living strictly off of nature with no energy source to your home including water from a public utulity company).

Current Debt is specifically any debt that is incurred and not initially paid off right away, but then is paid off in full by the next due date in the billing cycle. Three (3) examples meet this criteria:

Gas and Electric (Obviously, they can’t really bill you for this if it’s based on actual usage, which I won’t go for the budgeted billing route cause they take the sum of the last 12 months, divide by 12, multiply by 13.5, and then set that as your budgeted amount to pay if you go with the budgeted billing route. Thank you, but no thank you. Why should I pay the company extra early on only for them to use that money free of interest charge, just so as they can claim, I got the last month free of charge? That wasn’t free of charge, I still had to pay it, but only even sooner and you got to use that money free of interest charge. Therefore, no budgeted billing for me to use.)

Water and Sewerage (Same thing here, they bill based on actual usage)

Credit Card of the previous billing cycle: As you charge, you purchase the asset/service (Asset increase or Expense increase) and incur the debt (Liability increase). However, once that billing cycle has ended and you get the bill, you pay that full new balance amount off by the due date, so as this debt once again goes away. This sort of debt, I also call as CURRENT DEBT.

There may be others, but such items that DON’T qualify as such?

Cell Phone Charges: If you notice, you pay in advance of the time period that payment applies to. As such, it’s a Pre-Paid Asset, which then on an accrual basis gets expensed as time progresses.

Internet Service, TV service, and many others are all pretty much under that same deal.

In all cases, if you don’t pay the bill by the due date, such bill amounts becomes what I call Long-Term Debt (could be installment as most are, but some aren’t). At that point, that’s when you become subject to several hefty finance charges.

17 richard price

currently with a td broker not satisfied time for a change have 500.000 dollars and need income monthly or quarterly plus old age and cpp for wife and I. cud u suggest 5 to 10 places to invest where i cud maximize monthly income at a low fee . overall growth would be nice so many choices for the unsophisticated i keep reading but just get confused I need somewhere to start and build my knowledge from there. Any help would be appreciated. The only thing i know for sure is that the 10,000 td takes from me is not worth the advice i get. thks for any assistance you may provide. You are the only one i have ever asked for help. richard price

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