Archive for December, 2005

The 2005 Sleepy Portfolio Report Card

December 31, 2005


The Sleepy Portfolio had a stellar year returning 12.9% in total returns. The biggest winners were Canadian large-cap equities (up 25.3%), Canadian mid-cap equities (up 20%), EAFE (up 11.2%), Canadian REITs (up 16%), Emerging Markets (up 33%) and US mid-cap equities (up 12%). Surprisingly, none of the major asset classes in the portfolio had a negative year.

As noted in an earlier post, our personal portfolio returned a total of 13.2% over the year. The big winners were CAE Inc. (TSX: CAE), Canadian Natural Resources (TSX: CNQ), Sears Canada (TSX: SCC), E*Trade (ET), AGF Management (TSX: AGF.NV), Altria Group (MO) and TD Bank (TSX: TD), all of which posted better than 20% returns. The big losers were Pfizer (PFE) and Anheuser-Busch (BUD).

Sleepy Portfolio Performance for 2005

Asset Allocation Explained

December 30, 2005


I received the following query regarding my asset allocation and thought I would make a post on the subject.

How did you arrive at this allocation? I’m thinking about making a passive portfolio of index funds, but I don’t know what asset allocation I should have, and Vanguard’s Investor Questionnaire only differentiates between stocks and bonds.

First, I determined the split between cash, bonds, stocks and REITs based on my age and risk tolerance. Since my spouse and I are decades away from retirement and our risk tolerance is fairly high, we have a relatively low allocation to cash (5%-10%) and bonds (20%-25%). I don’t have a very good explanation for the split between different equities other than that it is roughly split equally between Canada, US and International (EAFE and emerging markets). I also have about 5%-10% exposed to asset classes (like REITs) that have low correlation with stocks and bonds.

Some columnists like Jonathan Clements of The Wall Street Journal think that the exact details of the asset allocation (beyond the stocks-bonds split) are relatively unimportant. What is important is having a target allocation and rebalancing the passive portfolio when it deviates too much from the target.

A very good portfolio planner is available from TD Bank and an Asset Class Allocator from iUnits provides a returns calculator for a diversified passive portfolio.

New Year Resolutions

December 29, 2005


As 2005 draws to a close, it is that time of the year to make resolutions (and hopefully keep them). Here are my financial resolutions for the New Year:

  1. Fully fund our RRSP accounts. I have to admit that money has been a bit tight this year (spouse on maternity leave) and we have only contributed 78% of our eligibility for 2005.
  2. Pay down consumer debt. Unfortunately, we had to use our secured line of credit to purchase a family van. Now, I would like to pay it off as soon as possible.
  3. Reduce mortgage debt. Since, money will also be tight in 2006, I don’t see how we will be able to make a lump sum pre-payment on our mortgage. We will continue to pay about $200 more towards our mortgage every month.
  4. Continue to invest wisely. In 2005, my portfolio returned 13.5%. I initiated a small position in a bond index fund and increased my exposure to international markets (by buying EFA). I’ll be looking to initiate exposure to REITs and emerging markets.
  5. Reduce expenses. Despite our decreased cash flow, we plan to spend far less than we earn.
  6. Start and fund an education savings plan (RESP) for our kids.
  7. Increase our net worth by 15%.