Category: My Portfolio

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.

Status of Transfer to E*Trade

Well four of my mutual funds were finally transferred. My one ETF (iShares XIU, the S&P TSX 60 Index ETF) was transferred very quickly. But it took the mutual funds almost a month, and I am still waiting for one more (an Elliot & Page Growth Opportunities)! Yet another reason to get ETFs instead of mutual funds I guess. 🙂

I have just noticed that E*Trade’s website does not offer much. Beyond buying & selling that is. Would be nice if some of these online brokerages would include some performance data in there automatically. Or at least an open API or webservice (like Google or Flickr) so you can connect to your data and do some crunching or something. Then all sorts of applications would start popping up.

First Portfolio Update Since Starting at Clearsight

It was quite a while ago, in March of this year, when I completely switched to my advisor at Clearsight and left the self-directed RRSP days at TD Canada Trust behind. I just realized looking back at that article that I never actually gave the final portfolio that my advisor and I decided on. At least I couldn’t find the post. Well here’s what I initially bought back in March (book value from middle of March):

RRSP holding Type Account %
CI
Value Trust		 US Equity 11%
Templeton
International Stock Fund		 Global Equity 26%
Canadian TSX60 index ETF Canadian Large Cap 34%
E&P
Growth Opportunities		 Canadian Small Cap 4%
TD Canadian Bond Fund Canadian Bond 25%

I just visited my advisor last week and he updated me on the performance of all the funds/ETFs and his thoughts on how they had all done. He had printed charts from Morningstar’s website and we mainly just looked at the 3-month performance figures to get an indicator of how they had done since I had bought them. Normally I woould not care about something like that but after not having looked at my portfolio at all since I invested, I was very curious. It turned out that all of the funds lost out to their respective indexes (I think). Here is the picture now (market value as of June 30, 2006):

RRSP holding Type Account %
CI
Value Trust		 US Equity 11%
Templeton
International Stock Fund		 Global Equity 27%
Canadian TSX60 index ETF Canadian Large Cap 34%
E&P
Growth Opportunities		 Canadian Small Cap 4%
TD Canadian Bond Fund Canadian Bond 25%

Ok, so that barely changed. And those numbers no longer add up to 100% due to round-off error. The value of my portfolio has dropped by 2.8%. It could have been a lot worse if it was not for the 25% I have allocated in bonds and the 11% I have in cash (I have left cash out of the picture in the above).

Anyways, I have about $2962 in cash built up from monthly contributions and my wife has $4165 built up. Our advisor though it would be a good idea to put my wife’s cash into more of TD Canadian Bond Fund. It is a little bit strategic on our part but I will never complain about having lots of fixed-income conservative investments in my portfolio. On the other hand, what we are doing might be akin to what I talked about in a previous article called “How Not to Rebalance.” Let me know what you think.

Long Time No Write

It sure has been a long time since I have generated much activiy on this site. I basically stopped looking at other blogs in my blogroll at bloglines so much because it was such a time waster. Now I just look at a few selective blogs, mostly the Canadian ones. And let’s face it, most blogs are crap anyways. 😉 I started pruning off all sorts of blogs, any blog that made reference to Kiyosaki in a positive light, anything that talked about credit card balance transfer money-making schemes, any blogs obsessive about producing ad revenue (more so than they were about investing), or anything else that I felt wasn’t worth my time. I still have far too many blogs listed in my bloglines account though. I really should trim it down more.

So what have I been up to on the financial front? Not much, everything has been going really smoothly the past few months. I have not talked to my financial advisor in a LONG time. I am just pumping the cash into my RRSP and my wife’s RRSP every month and he is accumulating it until there is enough to buy something like an ETF. I honestly have not even checked the status of my portfolio in at least 2 months. I really do not care if it has gone up by 3% or gone down by 3% during that time. That’s the way I like it, just focused on the long term performance, not worrying at all about day-to-day market activity. On the personal finance front, my spending system is working great and I hope to describe it in detail some time soon.

Portfolio Update: Settled In

Back on March 5th, I mentioned a proposed portfolio my advisor and I were working on. We finally came to an agreement on my allocation and what to buy, and this is what I bought on March 10, 2006:

RRSP holding Type Account %
CI
Value Trust		 US Equity 11.3%
Templeton
International Stock Fund		 International Equity 26.3%
Canadian TSX60 index Canadian Large Cap 33.7%
E&P
Growth Opportunities		 Canadian Small Cap 3.8%
TD Canadian Bond Fund Fixed Income 25%

The percentages don’t work out to nice even numbers because we took my advisors original numbers for the equities and multiplied them by 0.75 to make up the equity component of my 75-25 equity-bond split. We will find some nice round numbers to target eventually and then rebalance around those as need be.

You will notice two major differences between what my advisor had originally proposed, and what we ended up getting. The Canadian Energy Index is absent and the TD Canadian Bond Fund is in there as a significant fixed income component. The only change I wanted but I didn’t get, was the use of the Rydex Equal Weight ETF (RSP) instead of CI Value Trust. He seemed to really want to go with that so I let it be. He is interested in RSP though and will look into it some more. He felt it was not much different from a mid-cap index like MDY. If you look at a past performance comparison between MDY and RSP (before dividends) they look pretty similar.

Costs: I paid $75 commision (advised trade to get the iUnits S&P/TSX 60 ETF) and $0 for the mutual funds. As I said in a previous post, mutual funds at Clearsight are all essentially no-load because they buy front-load funds and charge no front-load sales charge.

Should Young People Hold Bonds in Their Retirement Portfolios?

Investing Guide asks should young people carry bonds in their portfolio?” This is question that I have mulled over before as well. I agree with Loi that “there have been some conflicting advice on whether young people should have bonds in their portfolio.” Personally I have been through one bear market already (without any fixed income) and I do not want to go through another one without bonds in my portfolio. Some of you will know what I mean. Others will not know the agony of seeing your portfolio’s value fall month after month as the stock market tanks. However, “having some bonds (15-20%) in a portfolio lowers downside risk by a large amount.” This is one of the key reasons that I want to have some bonds in my portfolio, to reduce downside risk.

The second reason that I want have some bonds in my portfolio is because Benjamin Graham says so (at least 25% bonds). Benjamin Graham knows what he is talking about. He was around for a long time, during the depression, post-depression and all the way until the 1970s. He has seen many ups and downs. In the Intelligent Investor (1973 edition) he says that:

even high-quality stocks cannot be a better purchase than bonds under all conditions–i.e., regardless of how high the stock market may be and how low the current dividend return compared with the rates available on bonds. A statement of this kind would be as absurd as was the contrary one–too often heard years ago–that any bond is safer than any stock. [emphasis his]

At the end of the chapter, after much discussion (you will have to read it), he concludes that

Just because of the uncertainties of the future the investor cannot afford to put all his funds into one basket–neither in the bond basket, despite the unprecedentedly high returns that bonds have recently offered; nor in the stock basket, despite the prospect of continuing inflation

In Chapter 4 he addresses bond-stock allocation in more detail for the defensive investor. It can be summarized as the following:

He should divide his funds between high-grade bonds and high-grade common stocks. We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds.

Note that Graham does not discriminate by age. Jason Zweig goes on in his end-of-chapter why going 100% stocks may be ok for a small minority of the population:

For a tiny minority of investors, a 100%-stock portfolio may make some sense. You are one of them if you:

  • have set aside enough cash to support your family for at least 1 year
  • will be investing steadily for at least 20 years to come
  • survived the bear market that began in 2000
  • did not sell stocks during the bear market that began in 2000
  • bought more stocks during the bear market that began in 2000
  • have read Chapter 8 (The Investor & Market Fluctuations) in this book (The Intelligent Investor) and implemented a formal plan to control your own investing behavior

Personally I do not think I fit into this small minority. Secondly I think that going with a 100% portfolio goes against my third and final reason for wanting some bonds in my portfolio: rebalancing. If you have a 100% stock portfolio and the market tanks by 20% this year you cannot take advantage of rebalancing. If you have a 75% equities, 25% fixed-income/bond portfolio and the stock market tanks by 20% this year, your allocation will shift to 71% stock, 29% fixed-income/bonds. Assuming you can do this in a low-cost fashion, you can instantly get a hold of cheap stocks by selling part of your bond portfolio and buying equities.

Getting back to the whole age thing, I do not think it really matters. When you get really old you should obviously be more focused on income and capital preservation than when you are young. But I do not think people in their 20s should invest any differently than people in their 30s and 40s. That is, I think they should have some bonds in their portfolio no matter what. Capital preservation should be just as important to someone in their 20s. And as Loi mentioned in his article, the average return of a 100% stock portfolio from 1960-2004 was 10.5% whereas the average return for a 80% stock/20% bonds portfolio was 10.1%. I haven’t verified those figures but I have seen similar graphs and numbers quoted before so I am not surprised. I cannot think of why anyone would not want to take a small 0.4% hit on their return for the lower risk offered by a mixed bonds/stocks portfolio.

Initially my advisor did one of those risk surveys on me and I fell into the 100% equity category. Unfortunately those risk surveys are seriously flawed. Just because you have held stocks and mutual funds in the past, have a 30+ years time horizon, have a sound knowledge of investing, and can answer a bunch of other basic questions does not mean that you should automatically be in a 100% equity portfolio. I insisted that I have 25% fixed income (à la Graham) so my new portfolio at Clearsight will hold 25% TD Canadian Bond fund for now (great for rebalancing with as their are no commissions as with ETFs).

Too Many Choices (or why I am ready to give up)

If you have read my last post you will know by now that I am set to start my new portfolio at Clearsight. I have been debating what to choose for my US equity component, and whether or not to go with my advisor’s recommendation of CI Value Trust (satellite fund of Legg Mason Value Trust). I said in my last post that am not interested in investing in Bill Miller‘s Value Trust fund but that I said I would rather go with the Rydex S&P 500 Equal Weight Index ETF (RSP) instead. I have now come to the realization that RSP is very similar to the S&P 400 Midcap Index which is also available as an ETF (MDY). It is very highly correlated and comparing the performance of these two ETFs makes this obvious. There is also a small advantage to getting MDY over RSP in that “the higher volume on MDY is an advantage for that fund, as is the typically tighter bid/ask spread” but this is probably splitting hairs. Comparing either of these two funds to Bill Miller’s Value Trust is probably not a fair comparison, just as comparing S&P 500 (huge-cap) to S&P 500 Equal Weight (semi-large to large-cap) is not exactly a fair comparison as they are in different classes and will of course perform differently. I found yet another index choice today, the S&P 500 Value Index (IVE). It has beaten the S&P 500 index but it has not been able to catch Bill Miller’s Value Trust. Sounds like a great alternative to the S&P 500 index though as it screens out some stocks which aren’t a good value.

At this point I began to get frustrated with the number of choices out there. RSP, SPY, MDY, IVE, and that is only a few of the ETFs available. Then there are the actively managed mutual funds, LMVTX being only one of many, and of course there are the index mutual funds of which there are probably one for every index just like the ETFs I mentioned above. Sometimes I feel like I know exactly what I want, other times I can not makes heads or tails of it with all the choices and knowing there are even more choices out there that I have not examined is daunting. It is frustrating for some someone like me, skilled in the maths and sciences and now software, that there is not some exact deterministic way of determining the ideal choice.

When I left TD, one of the main reasons was because I did not have a proper selection process for what I would buy for my RRSPs. Usually I would scan the performance (usually the longest term possible, 10-years or since inception if available) and choose funds that looked like they had done well in the past. This was flawed because crappy funds can have a few stellar years and good funds can have a few bad years. Or sometimes I would look for funds that did well in the past, but might have just come off a bad year (hoping to catch the fund on the up-swing). This method was also flawed. The second reason I left TD was that I did not want to be a DIYer anymore. I felt like an amateur/hack trying to do a professional’s job, and I was not succeeding. Not only that but I did not have enough time to spend on this. You may think that writing and researching articles for this blog takes time, and yes is does (and I have learned a lot about investing by writing this blog), but it cannot compare to the amount of time financial advisors and their superiors have spent day in and day out trying to answer these same questions. It is after all their full-time job. My financial advisor says that he does not pick stocks. He leaves that to the professionals, such as Ross Healy or Bill Miller. He does not have time to research stocks for his clients. By the same token, I should leave the management of my portfolio to my advisor because I do not have time to do it myself.

This does not mean that I should leave everything up to my advisor. Much like my advisor will monitor the actions of Ross Healy and Bill Miller I should also vet all actions my advisor recommends for my portfolio. Right now I think I am ready to give up and let him decide what is best. I would like to have a say in the asset allocation and I really want to have 25% bonds and the rest balanced between Canadian, US, and International. But as for what is inside those categories I really do not have the time to examine his choices of holdings for me in microscopic detail. It has already taken far too much of my time. The portfolio that my advisor is recommending is already much better than my old TD portfolio for many reasons, and if going with an advisor helps keep my hands off my portfolio and helps me keep this allocation over the long term, then it will surely achieve much better performance in the long run than I was getting with TD as a DIYer.

No time to read over this rant, it’s too long. Grammar mistakes be damned!

Portfolio Update

My RRSP holdings at TD Canada Trust have been transferred from TD to Clearsight in-kind, meaning that they been transferred whole without being sold first. I was only required to sell my TD eFunds to transfer them. Now my advisor and I are getting ready to sell all my TD holdings and start my long-term retirement portfolio anew. My advisor forwarded me a suggested portfolio on Friday:

RRSP holding Type Account %
CI
Value Trust		 US Equity 15%
Templeton
International Stock Fund		 Global Equity 35%
Canadian TSX60 index Canadian Large Cap 40%
Canadian
Energy Index		 Canadian Energy Equity 5%
E&P
Growth Opportunities		 Canadian Small Cap 5%

Here’s the total asset allocation breakdown:
15% US Equity, 35% International Equity, 40% Canadian Large Cap Equity, 5% Canadian Energy Equity, 5% Canadian Small Cap Equity

This is similar to what he suggested before, the main difference being that he suggested a lower US portfolio allocation because he thinks their currency is set to take a beating; however, he says we will shift towards my 25%-25% allocation later as he, like me, believes in keeping a fairly static asset allocation over the long term. Also, it says TSX60 Index above, but it is actually iUnits XIC ETF which no longer tracks the S&P TSX 60 but tracks the X&P TSX Composite.

Here are the changes I want to make to it:

  • Add 25% to fixed-income. TD Canadian Bond fund or Altamira Bond fund would be my choices there.
  • No separate energy equity right now. There is plenty of energy stocks in the Canadian index and I am just not interested in playing around with an additional energy index right now, but it is something I will consider later.
  • Instead of CI Value Trust I would like to buy the Rydex S&P Equal Weight ETF. I have talked about it in several previous posts. Bill Miller’s fund is a lot riskier yet it has not managed to beat the equal-weight index.

This would make the allocation: 25% fixed income, 15% US Equity, 35% International Equity, 20% Canadian Large Cap Equity, 5% Canadian Small Cap Equity.

I am not sure what I will end up with. My advisor might be able to sway me the other way a bit, but hopefully we will end up with something he agrees is good for me and that I am comfortable with.

My Mistakes

MyMoneyBlog is hosting a “Reverse Carnival.” It will be a compilation of other bloggers’ money mistakes. Here are mine:

  • In around 1996, I bought AIC Advantage Fund (a financial sector fund) based on its stellar past performance. The fund did well for a little while more, then tanked. By 2000 I because frustrated with its poor performance and sold, when really I should have bought more.
  • After the AIC fiasco, I transferred my cash from the sale of my AIC Advantage Fund to TD Bank. I wanted to start an RRSP and I was also determined to learn from my mistake with AIC Advantage Fund and diversify. I ended up over diversifying. By 2005 I had several large cap Canadian TD mutual funds, replicating the performance of an index fund but with the 2% MER. Things were not much different when it came to my US, International, and fixed income holdings.
  • I bought shares in a small company I worked for called EXI Wireless in around 2000. I bought shares when they were about $1 each. The stock ended up falling slowly over the next few years to around $0.50, and then ended up rising again. A few years later the stock was over $1.34. That’s not a bad return. Anyways I had sold when it was down around $0.65, so I lost on the deal. I bought the stock for no good reason and I sold it for no good reason.
  • Bought TD Science & Technology Fund during the tech bubble. Sold it post-bubble.
  • In 1999, my grandma, her husband, some of her friends, and I started an investment club. The club was doomed from the start. We had big aspirations of buying the next Nortel or the next Cisco, or Lucent, etc… You get the picture. Between 1999 and 2002 we bought (in approximately chronological order): 360 Networks, Nortel, Lucent, Nokia, Patheon, more Nortel, Harrah’s, more Nortel, Global Crossing. All of our stocks lost money except for Harrah’s which we sold after making 20 or 30% on our investment in only 6 months. 360 Networks and Global Crossing both filed for bankruptcy if I remember correctly and their stock became worthless.
  • Stupid purchases: zoom and wide-angle camera lenses which I never use ($100), Garmin GPS running watch which I barely used and eventually broke when I accidentally went swimming with it in my pocket ($120), several books on programming which I have never opened. These were all impulsive purchases made on credit by the way.
  • Brought traveller’s cheques to Mexico in $20 USD denominations, not realized that I would have to sign each one individually (huge pain in the ass when you have to sign 20 of them to get $400 cash), that it can be challenging to find a place to cash them, and that finding an ATM in Mexico (even in Tulum) isn’t that hard. I also got screwed on the exchange twice. Once to go from CAD to USD and again to go from USD to MXN.
  • Ate out for lunch almost every day since 1997.
  • Got rid of my 1986 Toyota Tercel before moving away to grad school for 2 years for far less than it was worth. Should have kept in the the parents driveway.
  • Thought it was actually possible to beat the house in blackjack with just the right technique!

For more, see the Canadian Capitalist’s mistakes, MyMoneyBlog’s mistakes, Hazzard’s mistakes, or Madame X’s mistakes.

Bank Switch Almost Complete

Finally started the switch from BMO to PC Financial. Switching banks is hard, especially when you have 2 automatic pay-cheques and 9 automatic bill payments/withdrawals set up per month. But this week we officially got the ball rolling by sending new void cheques to all the appropriate people, by fax, mail, or online. We made sure that there is enough money in both the BMO and PC accounts before switching as I’m sure the timing between our pay-cheques and the bill payments/PADs will be off a bit and we want to avoid those NSF fees. It’s a pain in the ass, but once it’s all over with, I won’t regret making the switch.