If you’re a regular reader of this blog, you’ll know about the bragging retiree I showcase regularly.

But like Muhammad Ali in the 1960s, Harry can back up his claims.

He fired his financial advisor in 2008 and created an account of exchange traded funds.  Because he’s retired, he withdraws small sums of money from the account, periodically, to cover some of life’s expenses.  Harry’s wife has a pension, and they’re able to live off those proceeds, for the most part.

But overall, his account still has slightly more than $281,000 in it.  And Harry didn’t want to see any of it going towards what he deemed, “leeches of the financial service industry”.

When Harry started this account, the market was starting to nosedive.  And Harry’s account fell along with it.  But because Harry had a healthy bond component, he was able to follow a textbook strategy: he sold off some bonds to keep his stock portfolio and bond portfolio at the same allocation level (40% bonds, 60% stocks) that they were when he started.

Harry doesn’t mince words when suggesting that investment professionals are rarely able to do the same thing.

“I’ve kicked ass over the expensive balanced mutual funds at Canada’s biggest banks.  They’re supposed to have professionals who manage those funds and rebalance them.  But they’re a bunch of sissies”

Why does Harry speak so harshly about Canada’s flagship, balanced, mutual funds?  For starters, they do cost a lot of money—charging hidden fees exceeding, on average 2.2%.

But Harry’s account has such an advantage over the balanced funds at the Canadian banks because, in Harry’s view, they didn’t do what they were supposed to do when the markets tanked in 2008/2009.

“Those patsies didn’t rebalance,” says Harry.  “They didn’t have the guts to do it.  What good are they?”

To clarify Harry’s point, a balanced fund is meant to keep a certain allocation in stocks and a certain allocation in bonds.  When bonds rise faster than stocks, new stocks are meant to be bought (or bonds sold) to keep the original allocation.  When stocks rise quickly, some are sold, or bonds are bought, to keep the status quo.  Harry lambastes the highly priced fund managers at the big five banks for not doing their jobs.

Below, according to Harry’s brokerage, Q-Trade account www.qtrade.ca you can see his results compared to a variety of indexes.  Without adding a penny to his investments (Harry would have added fresh money during the market decline of 2008/2009 if he was working) he is up 9.4% overall.  Check out his portfolio, since its inception, compared to the indexes below.

PORTFOLIO BENCHMARK VIEW Cash: $363.81 Portfolio Value: $281,149.01 Buying Power (Consolidated): $363.81

Select Account: Q5K8EFYA – CDN CashQ5K8EFYB – US CashQ5K8KL9A – CDN CashQ5K8KL9B – US CashQ5K8KL9L – TFSAQ5K8KL9T – RRSP     Year-to-date1 Last 12 Months1 Since Inception2 (Jul/2008) Your Portfolio 6.11% 6.11% 9.4% Dow Jones Index – CAD 2.85% 3.57% 0.30% Dow Jones Index – USD 5.54% 6.39% -1.27% Russell 2000 – USD 16.25% 25.40% 2.21% Russell 2000 = CAD 13.28% 22.08% 3.83% S&P 500 – CAD 3.17% 4.89% -1.76% S&P 500 – USD 5.87% 7.75% -3.29% TSX – CAD 10.27% 13.15% -4.47% TSX – USD 13.16% 16.24% -5.96% TSX 60 – CAD 6.94% 8.98% -6.10% TSX 60 – USD 9.74% 11.95% -7.57% USD – CAD -2.55% -2.65% 0.59%

But comparing to isolated indexes isn’t fun for Harry.  It’s meaningless, in his eyes.

Comparing, however, to the flagship balanced funds at the 5 biggest Canadian banks is more sporting, according to Harry.

Here are the results of Harry’s account, since August, 2008, compared to the actively managed balanced funds at the biggest 5 Canadian banks…..as of December 10, 2010.

• Harry’s account : +9.4%

• CIBC Balanced Fund : +3.0%
• RBC Balanced Fund : -0.62%
• TD Balanced Growth Fund : -1.13%
• Bank of Montreal Balanced Fund : -3.1%
• Bank of Nova Scotia Canadian Balanced : -0.9%

As an average, Harry has beaten these high cost funds by 9.77% in slightly more than just two and a half years.

Will they catch Harry?  It really isn’t likely, considering how fee-laden they are.

In dollar terms, Harry’s account is roughly $27,453 ahead of the big five bank’s actively managed mutual funds, over a fairly short period of time.

Harry and I both know that his lead will extend, as an aggregate.  And in a decade, Harry could be looking at a triple digit dollar advantage.

Friends don’t let friends drink and drive.  And friends don’t let friends buy expensive actively managed mutual funds either.

If you’re interested in seeing Harry’s portfolio, it’s below:

PORTFOLIO BASIC VIEW Cash: $363.81 Portfolio Value: $281,149.01 Buying Power (Consolidated): $363.81

Quote View Valuation View Allocation View Performance View Benchmark View   Action Description Symbol Quantity Currency Current Price Market Value % Holdings Cash CAD $363.81 0.1% BuySellQuote/ChartAccount History ISHARES D/J CAN SLCT DIV IDX XDV 1,660 CAD $20.60 $34,196.00 12.2% BuySellQuote/ChartAccount History ISHARES DEX SHORT BD IDX FD XSB 3,850 CAD $28.86 $111,111.00 39.5% BuySellQuote/ChartAccount History ISHARES DEX UNIV BD IDX FD XBB 220 CAD $29.47 $6,483.40 2.3% BuySellQuote/ChartAccount History ISHARES MSCI EAFE INDX FUND XIN 2,735 CAD $18.46 $50,488.10 18.0% BuySellQuote/ChartAccount History ISHARES S&P 500 HEG CAD FD XSP 2,820 CAD $14.27 $40,241.40 14.3% BuySellQuote/ChartAccount History ISHARES S&P/TSX CP CMP IDX XIC 1,830 CAD $20.91 $38,265.30 13.6% Totals $281,149.01 100%