My Portfolio’s Performance for 2006

I finally crunched the final numbers and here is how we did in 2006:


Annualized returns
From: 2006-01-01 to 2006-12-31
===============================
TD Stuff: 14.24%
Templeton International Stock Fund: 28.79%
S&P TSX 60 Index ETF: 13.28%
E&P Growth Opportunities Fund: 5.97%
CI Value Trust Fund: 8.89%
TD Canadian Bond Fund (Wife): 8.30%
TD Canadian Bond Fund (Dave): 4.19%
Cash (Wife): 1.71%
Cash (Dave): 6.17%
===============================
Overall: 12.17%

I got these numbers by making a list of all the inflows and outflows; not just into the entire RRSP but into cash, into the investments, out of the investments, out of cash, and so on. Every transaction is a double-entry transaction, except for the final balance (outflow) and the cash inflows from my chequing account (inflow). I could have just looked at cash flows into my RRSP and the final balances but I wanted to see the breakdown between the different components. Once I had the cash flows for each individual investments I did an Internal Rate of Return for each individually. I also did an overall calculation for the entire portfolio (shown at the bottom). Considering that the EAFE index went up 23.47% last year, the S&P 500 went up 13.62%, and the TSX went up 14.51%, we didn’t do too well. All of the stuff there except for the “TD Stuff” we only owned since March when we switched to Clearsight from TD. So I lost to the the indexes I mentioned above. The reason is because we had a sizable bond portion of about 25% and we were also carrying around a lot of cash (not literally) this year for whatever reason. Well part of the reason was that Clearsight dumped my advisor after they were bought by Wellington West and I ceased communication with them after that as I switched to E*Trade. So I didn’t do any trading during that time and our cash pilled up a bit too much.

The reason that my cash account went up by 6.17% annualized is because the dividends from the iShares S&P TSX 60 Index ETF (XIU) do not get reinvested (ie. it’s not a DRIP) but instead go into my cash account. So the dividends show up as sort of a capital gain in the cash account. One way for me to fix this would be to aggregate the cash inflows and outflows from cash and the iShares XIU and get the annualized return for that combination. That would give the annualized return including inflation. But once I buy another dividend-paying ETF, then what? The final 12.17% annualized return takes into account all the unrealized capital gains and dividends that went into the cash account and the dividends on the TD Canadian Bond Fund that were reinvested.

I really love these calculations. It really shows how well YOU did regardless of that the mutual fund’s NAV or the ETF’s market price did. Look at the TD Canadian Bond Fund for example. My wife got 8.3% annualized on hers and I only got 4.19%. This was because I bought it at a worse time. What’s the lesson here? That you should try to time the market? NO! You can’t time the market (so give up trying). The best way in my opinion is to trade completely randomly (hard to do) or just trade at some regular interval (easy to do) regardless of what the market is doing. Too many investors panic when their investments lose value and chase performance in bull markets. These behaviours lead to lower annualized returns for your portfolio, regardless of what the underlying mutual fund or ETF’s published returns were.

I wrote about investors and their bad timing before. Here is one of the quotes from that blog post:

The results indicated that, as with most active funds, investors’ timing decisions were costly when it came to index funds. The dollar-weighted returns for virtually all large-cap index funds were worse than their official returns for the trailing 10-year period through the end of the third quarter 2005. As the table below shows, poor timing cost Vanguard 500 shareholders 2.7 percentage points of returns per year over the past decade. That’s not chump change.

So I hope to see from these calculations how good/bad my timing is. By this time next year I will have an all ETF portfolio so I will be able to compare my annualized return in index X with the return of index X over the same period.

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5 Responses to “My Portfolio’s Performance for 2006”


  • Nice returns. :) If you can’t time the markets, then why worry about how good/bad your timing is? Seems contradictory.

  • Well just to make sure that I am not doing something stupid. In the past I have done stupid things. I panicked at some point during the tech slide and sold some of my TD Science & Technology Fund. Had I bought some more instead (to rebalance, not to “time” the market), I would have done better. And probably my annualized return would have matched or beaten the return of the fund itself.

    So I want to track this stuff to make sure I don’t do anything stupid. If I see a huge discrepancy between MY return of an ETF I own compared to the return of the index, I can look back at my transactions and say, did I do something stupid here?

    It would be interesting as well to see how much of a bonus I’ll get from rebalancing… and this kind of information will show that.

  • Hey Dave!

    Found you through Canadian Capitalist! Great blog you have, I will be visiting often.

    FT

  • Greetings…
    I will certainly sign you up for Tour of Canadian Personal Finance Blogs..

    Please do tell your blogger friends about it!!

    Cheers!

    http://www.canadian-money-advisor.ca

  • Hey Dave,

    I just wrote these news guide lines for the Tour.
    Canadian Tour Guide Lines

    First thing to do is write a post for your readers talking about the Tour and putting “I’m a particant” graphic in the post.

    I’ll need your article to look at for April 13th, so that I can have it reviewed by April 16th.

    Then it would be good to talk up the tour with your fellow bloggers to generate some interest.

    Yes.. let’s get this thing started.

    Let me know if you have any questions.

    Thanks,

    Monty Loree

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