I started this account of diversified index funds (ETFs) for Harry (not his real name), a friend of mine on August 15, 2008, shortly before the markets collapsed.

I first posted a blog entry about it in May 2009 and hoped that it could serve as an example for “Do it yourself” investors.

This particular account would suit a 50 year old investor without a pension, or an older investor with a partial pension because it has a 50% government bond component to it–adding an element of safety amidst falling stock prices.

Despite the pounding that the markets have taken this year, this gentleman’s account is down just 4.9% since August 2008.

What was the secret to his success?

First, fees were kept low. Index funds are far cheaper than actively managed mutual funds are. And second, when the markets continued to drop in January, I rebalanced his account. His bond allocation was getting to be much higher than 50% of his total, because his stocks were falling–pushing the percentage of stocks lower. In January, I sold off some bonds (which had risen in value) and bought stock indexes, bringing his allocation back to 50% stocks and 50% bonds.

I wasn’t able to “time” the bottom. Stocks kept falling, even after I bought more. But eventually they recovered a bit, and you can see below, that by averaging down on his Canadian stock component, he was able to generate a total return (since August 2008) of +11.3% on his Canadian equity portion–despite the fact that the Canadian index is still down, relative to its position 12 months ago.

As of June 30th, 2009, the American Funds Target retirement funds (which are combinations of stock and bond funds) have one year performances ranging from minus 26.98% to minus 21.92%, including sales loads. American Funds is the biggest fund company in the United States. Their target retirement funds are packaged funds–combining stock funds and bond funds. And even their most conservative target fund (their 2010 Target retirement fund) reported a one year loss of 21.92% from June 30th 2008 to June 30th, 2009.

Here’s the indexed (ETF) account I created for the gentleman I mentioned (with its performance since August 2008) and the portfolio is followed by all of the American Funds Target Retirement funds. By keeping costs low and re-balancing an indexed account, we were able to give the pros a nice beating.

Allocation Details (CAD$)

Portions of this table have been edited — however no results have been changed.

Equities Qty

Current
Price

%
Chq

Book
Value

Market
Value

%
Gain/Loss

%
Holdings
Cash & Equivalents
Cash $192.71 $192.71   0.1%
Totals $192.71 $192.71   0.1%

Equities
XSP 2,500 $11.33 – $29,437.50 $28,325.00 -3.8% 11.1%
XIN 2,555 $16.35 – $53,018.88 $41,774.25 -21.2% 16.4%
XSB 3,185 $29.05 – $91,635.36 $92,524.25 1.0% 36.2%
XBB 1,520 $29.12 – $44,203.41 $44,262.40 0.1% 17.3%
XIC 1,130 $16.80 – $23,855.95 $18,984.00 -20.4% 7.4%
XDV 1,660 $17.73 – $26,438.23 $29,431.80 11.3% 11.5%
Totals $268,589.34 $255,301.70 -4.9% 99.9%

 

Target Date Funds (Class A shares)

Fund Prices & YTD Returns   Average Annual Total Returns
NAV as of July 24, 2009, 3:06PM Pacific time (updated daily) Monthly as of June 30, 2009 Quarterly as of June 30, 2009
American Funds 2050 Target Date Retirement Fund®
Price Change YTD   1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
$7.57 $0.02 15.22% At NAV -22.54% -10.61%* — -22.54% -10.61%* —
Net/gross expense ratio**
0.73% / 0.90%
 With sales charge -26.98% -12.78%* — -26.98% -12.78%* —
American Funds 2045 Target Date Retirement Fund®
Price Change YTD   1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
$7.64 $0.02 15.06% At NAV -22.55% -10.62%* — -22.55% -10.62%* —
Net/gross expense ratio**
0.76% / 0.93%
 With sales charge -26.98% -12.79%* — -26.98% -12.79%* —
American Funds 2040 Target Date Retirement Fund®
Price Change YTD   1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
$7.62 $0.03 15.28% At NAV -22.52% -10.62%* — -22.52% -10.62%* —
Net/gross expense ratio**
0.74% / 0.89%
 With sales charge -26.95% -12.79%* — -26.95% -12.79%* —
American Funds 2035 Target Date Retirement Fund®
Price Change YTD   1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
$7.60 $0.02 15.15% At NAV -22.47% -10.57%* — -22.47% -10.57%* —
Net/gross expense ratio**
0.72% / 0.87%
 With sales charge -26.90% -12.74%* — -26.90% -12.74%* —
American Funds 2030 Target Date Retirement Fund®
Price Change YTD   1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
$7.61 $0.02 14.95% At NAV -22.14% -10.48%* — -22.14% -10.48%* —
Net/gross expense ratio**
0.73% / 0.87%
 With sales charge -26.60% -12.65%* — -26.60% -12.65%* —
American Funds 2025 Target Date Retirement Fund®
Price Change YTD   1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
$7.57 $0.02 14.18% At NAV -21.95% -10.41%* — -21.95% -10.41%* —
Net/gross expense ratio**
0.72% / 0.87%
 With sales charge -26.42% -12.59%* — -26.42% -12.59%* —
American Funds 2020 Target Date Retirement Fund®
Price Change YTD   1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
$7.72 $0.02 12.87% At NAV -20.38% -9.52%* — -20.38% -9.52%* —
Net/gross expense ratio**
0.71% / 0.85%
 With sales charge -24.93% -11.71%* — -24.93% -11.71%* —
American Funds 2015 Target Date Retirement Fund®
Price Change YTD   1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
$7.95 $0.02 11.50% At NAV -18.38% -8.25%* — -18.38% -8.25%* —
Net/gross expense ratio**
0.75% / 0.89%
 With sales charge -23.08% -10.48%* — -23.08% -10.48%* —
American Funds 2010 Target Date Retirement Fund®
Price Change YTD   1 yr 5 yrs 10 yrs 1 yr 5 yrs 10 yrs
$7.96 $0.02 10.71% At NAV -17.12% -7.77%* — -17.12% -7.77%* —
Net/gross expense ratio**
0.71% / 0.85%
 With sales charge -21.92% -10.01%* — -21.92% -10.01%*
 
 
…continue to track the progress of Harry’s Account from the right menu