Taking advantage of low cost exchange traded index funds and developing a responsible portfolio allocation, our friend Harry sets a nice precedent for others to follow.
In August, 2008, he started his account. The Canadian stock market is roughly 10% lower today (March 14, 2010) than it was in August, 2008. Likewise, the U.S. and international markets are still down more than 20% since August 2008, when measured in Canadian dollars.
With the rising Canadian dollar, investments in the U.S. market and the International markets were albatrosses to many Canadian investment accounts between August 2008 and mid March, 2010.
But Harry, as a smart investor, didn’t try to second-guess where currencies were going to go. He knows that very few people are ever successful trying to do that.
Instead, he maintained a diversified account with both the EAFE international index (ticker XIN-to) and the American S&P 500 index (XIC-to).
Yet, despite the drumming that the U.S. and International markets have taken (in Canadian dollars) Harry’s account is up $7,914.60 Canadian since August, 2008.
As mentioned in previous posts, Harry rebalanced his account back to his desired allocation when the markets kept falling in January, 2009. This allowed him to sell some of his bonds to buy cheaper equities.
From Harry’s Qtrade account (www.qtrade.ca) you can see his recent performance below.
PORTFOLIO PERFORMANCE VIEW
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Considering that the world’s stock markets are still much lower than they were in August, 2008, Harry has done very well to record nearly an $8000 profit.
But was he just lucky? I don’t think so. He followed the tenets of sound investing:
- He kept his costs low with exchange traded indexes instead of actively managed mutual funds.
- He kept a balanced allocation of bonds and stocks, allowing his account to hold steadier during the 2008/2009 market collapse.
- He was then able to rebalance as the stock markets fell, selling some of his bonds to buy cheap equities.
When selling some of his bonds to buy stocks, Harry wasn’t able to “time the bottom”. He didn’t even try. But he knew that he needed to rebalance, so that’s what he did.
To see Harry’s account holdings, look below:
|
Description |
Symbol |
Quantity |
Currency |
Current Price |
Market Value |
% |
|
Cash |
|
|
CAD |
|
$209.89 |
0.1% |
|
ISHARES CDN D/J SLCT DIV IDX |
XDV |
1,660 |
CAD |
$19.60 |
$32,536.00 |
11.8% |
|
ISHARES CDN MSCI EAFE IDX FD |
XIN |
1,735 |
CAD |
$18.32 |
$31,785.20 |
11.5% |
|
ISHARES CDN S&P 500 HEG CAD FD |
XSP |
2,500 |
CAD |
$13.31 |
$33,275.00 |
12.0% |
|
ISHARES CDN S&P/TSX CP CMP IDX |
XIC |
1,130 |
CAD |
$18.94 |
$21,402.20 |
7.7% |
|
ISHARES CDN UNIV BD IDX FD |
XBB |
1,520 |
CAD |
$29.59 |
$44,976.80 |
16.3% |
|
ISHARES SHORT BD IDX FD |
XSB |
3,850 |
CAD |
$29.19 |
$112,381.50 |
40.6% |
|
Totals |
|
$276,566.59 |
100% |
|||
…continue to track the progress of Harry’s Account from the right menu
Related posts:
5 comments
Natalie says:
March 18, 2010 at 5:55 pm (UTC 8 )
Slow and steady wins the race.
Financial Cents says:
March 22, 2010 at 8:34 am (UTC 8 )
Nice, save portfolio Harry. A little surprised by the large(r) XSB vs. XBB holding. I like the idea of XSP though, I have been considering that one in my RRSP for awhile…
Andrew Hallam says:
March 26, 2010 at 4:35 pm (UTC 8 )
Financial Cents,
I believe Harry went with XSB because it’s more of a short term bond index fund than XBB. Considering that interest rates are historically low, that made the most sense to him.
Jeff says:
April 5, 2010 at 9:01 am (UTC 8 )
Harry is a bit conservative for my liking, at age 50 with 15 – 25 years of growth potential still ahead of him. Providing the idex (S&P/Dow…) are selling at or below fair market value which I feel they were in 2008 and are still fairly valued. With the dow historically returning 11.5% over the long term I can’t help but think Harry might do better with a 70-30 split, index funds to bond funds, especially considering the average person is living into their 80′s now. I guess the key is to be able to look back and accuratley value the indexs and make sure to buy on the dips and ride out the highs. Harry might be down a little from his current portfolio but moving forward I believe his returns would be much superior with little added work. On that note I couldn’t agree more regarding saving the 2-3% annual fees tied to managed funds that continue to underperform the basic S&P/Dow indexes. Saving the 2.5% management fees Compounded over 25 years on a $100,000 portfolio equates to $85,000 and takes minimal education/ time.
Andrew Hallam says:
April 5, 2010 at 9:30 am (UTC 8 )
Thanks for the thoughtful post Jeff. I think Harry is going to try beating a 100% equity indexed portfolio (with the added bond safety) by rebalancing his account. The MoneySense couch potato portfolio has beaten the TSX index since 1976 by rebalancing with a 33% bond allocation. We’ll see if Harry can do the same thing. He thinks he can.
Thanks again for the thoughtful comment–you are right about straight equities beating straight bonds. Let’s see what kind of discipline Harry has. If he has no discipline, then you’re right, his bonds will drag him down.