- Comments (28)
- Text Size: Down Up
moneysense.ca, 9/03/09
Sleepy Mini Portfolio Q1-2009 Update
I don’t have to tell you that it has not been a fun time for stock market investors. How bad is it out there? We now have a bear market within a bear market. So far this year, a diversified portfolio such as the Sleepy Mini Portfolio with an 80% allocation to equities would have lost about 17% and we are barely past the first week of March! Here’s how the portfolio looks as of February 28, 2009:
TDB909 – Canadian Bonds – $987.62 (21.9%)
TDB900 – Canadian Equities – $927.90 (20.6%)
TDB902 – US Equities – $1,287.77 (28.6%)
TDB911 – International Equities – $1,299.38 (28.9%)
Total – $4,502.66
Total Invested – $6,000
While it does feel like throwing money into a meat grinder, I do know one thing: if there is one thing that I’ve learn from bitter experience it is that I can never trust myself to get the timing right. In that spirit, it is time to put another $1,000 into the Sleepy Mini Portfolio and rebalance it back to the target asset allocation – 20% bonds, 20% Canadian stocks, 30% U.S. stocks and 30% International stocks. That is what I’ve been doing in our personal accounts and whether it is foolhardy or wise, only time will tell. We’ll use the rebalancing spreadsheet to figure out how much of each holding should be purchased to bring the portfolio to target:
Transactions:
TDB909 – TD Canadian Bond Index (e-Series) – Buy units for $112.91.
TDB900 – TD Canadian Index (e-Series) – Buy units for $172.63.
TDB902 – TD US Index (e-Series) – Buy units for $363.03.
TDB911 – TD International Index (e-Series) – Buy units for $351.42.
Investing that feels more like having a hand stuck in a meat grinder!
moneysense.ca, 9/03/09
“Investing that feels more like having a hand stuck in a meat grinder!” I can definitely understand how you feel, just when you think the worst is out, something new comes out and takes the market plunging down.
Actually when a market is in a free fall one does feel horrible to invest any amount of $$. However it is after these horrible drops that markets bottom and never look back.. ( those two sentences have been relevant since early 2008 however, just like CC I am not better in market timing)
It will be interesting to look back on this post in 3 years as I think these prices (for the equities, not the bonds) will look fantanstic.
If I am right, it will be an interesting perspective at that time on whether it feels better paying higher prices with new money.
And kudos for the CC to stick to his progeram – because one is re not a true passive investor if you’re subjectively timing your cash flows. CC is doing it right.
I also use globefund to track my portfolio. My portfolio is very similar to your sleepy mini, except that my transcations are bi monthly, rather then quarterly. Heres to hoping that a decade from now our mini portfolio is no longer “mini”!
I’m in the same meat grinder… cheers!
CC,
Am I reading you graph right — since September 2007, at no time has the sleepy portfolio exceeded the cash placed into it, and the only growth is from your cash infusions?
An intgeresting commentary on investing…..
DAvid
DAvid: You’re right. Apart from a brief period in Q2 in 2008, the only growth has been from cash infusions. But up until Sept. 2008, the losses were relatively minor. We know what’s happened since then!
Link
Yeah, I feel the same way. I keep making my automatic RRSP contributions and it’s not fun watching the total be worth less than the previous month, and that’s including the contributions made during the month!
Did you ever cover the reason behind the Sleepy Mini’s asset mix? I’m interested in why Canadian equities have such a large share, relative to their size in the world. (As it happens, I have a similar mix, but it feels like something I should be correcting.)
I am just wondering if someone could explain to me the advantage of TD e-series funds (I am a newbie)? I have been looking a purchasing some but after reviewing their prices since inception I don’t see a lot of growth and even some negitive returns.
CC: Have you thought about using William Berstein’s technique in which for every 25% market correction, one can increase one’s portfolio equity allocation up by 5%? Since September 2008, there has been already a 25% correction. By following William Bernstein’s technique, you can increase your allocation to 85% equities and 15% bonds. Relatively speaking, equities are cheap and bonds are expensive.
@CC, anyone else: The problem that I (and perhaps many of us) have is that in order to rebalance my portfolio (target weight is 50% equities, 33% fixed income, 12% alternative investments and 5% cash) I would have to sell a lot of my equity positions at a loss (I took over management of my portfolio from my advisor 6 months ago and he had me 100% in a equity-heavy mutual fund). So right now my actual weight is about 90% equity and 10% fixed income. I just can’t bring myself to sell my equity positions at a loss and buy fixed-income such as XSP and CLF. And while I probably should be diverting 100% of monthly cash infusions to fixed-income, I just feel like I’d be missing out on low equity prices. So I’ve reasoned that a tactical shift away from my target weight in favour of equities is OK…but I understand this is a slippery slope! I’d welcome any comments on my situation and how, exactly, one should rebalance in a declining equity price environment.
DM – you got ‘owned’. If your adviser had you in the proper asset mix, rebalancing would have meant buying equity at this stage…
I would suggest that you decide on the asset allocation that is right for you, and then decide on a strategy to reach that AA over a longer period, say 3-5 years. If the period to reach the target AA is short relative to your remaining investment horizon, you can spare yourself most of the pain of selling major equity holdings at their current price. Split your regular contributions accordingly – you need to build cash/fi reserves. Who knows what the market will do – you might be buying equities to rebalance sooner than you think…
Note Econ Student’s comment. Unfortunately, you had the higher allocation BEFORE the drop…
@NN – thanks for this post. Fortunately, I’m working with a about a 30 year investment horizon, and I think I can balance the portfolio in 3 years w/o selling any equity positions. I agree I was misled but in truth I let myself BE misled. Fortunately I’m young and my portfolio has a good chance of recovering but the real mess is clearly with people in their early 60s or those who were approaching retirement…I’m confident that conventional wisdom about asset allocation is going to change as a result of this bear market. For example my parent’s advisor had my parents (both early 60s) at 50% equity…WAY too high in my opinion for a couple within a few years of retirement.
@ DM,
To reach your target asset mix, I’d caution against ‘buying’ only to reach the target. That would mean you would only be buying non-equity investments for the next year or two, and possibly miss out on a market recovery. As NN points out, make a plan to get you there in 3 years, and continue buying both high and low risk investments.
Take this opportunity to shift your equity investments away from the poor performers and into better companies, broader global diversification – or maybe just bite the bullet and sell some at a loss.
I disagree with what seems like everybody else’s optimistic views of the market and seemingly the economy. But that’s probably because I’m seeing everything from a southern Ontario perspective…
All of these countless thousands of jobs that we’re losing every month are jobs in the manufacturing sector will not be returning. When the world’s economy turns around, these jobs will reappear, but it will be in some low cost third world like country engaged in manufacturing. The numbers of people getting laid off now are staggering, but watch what happens when (not if) GM fails. There will be hundreds of thousands of Canadians out of work from Tier 1 & Tier 2 suppliers, drawing down from their savings and investment accounts, homes and mortgages to keep feeding themselves once their EI has run out.
Some may be able to move to Alberta or BC where the jobs are, but those provinces cannot absorb the entire population of all of those who have lost their manufacturing jobs. Even if there are unlimited job prospects in AB & BC, there would be insufficient infrastructure to manage hundreds of thousands of new residents and their families. Some may be able to find work in government make-work projects, but they would be putting even more of a strain on taxpayers.
At this point, I can’t foresee the any sector of the economy which can absorb that many unemployed. Maybe something will magically emerge, but I just don’t see it at this time.
Well, I’m optimistic (I think we all have to be at this point). I am also following William Bernstein’s technique of shifting my allocation after market drops. I have shifted from 60% equities and 40% bonds to 95% equities and 5% bonds. Rather aggressive but my investment horizon is 25-30 years. Am I crazy?
Not a bad portfolio if you depend on Canada as a proxy for emerging/commodity markets with a better financial sector. Too little attention to easy hedging-for-dummies with an increment of leveraged short ETFs, such as the Canadian Horizon BetaPro which prove themselves out in this bear market with any online charting service. Not to put life savings into, but to offset and moderate the downside risk of your bet that THIS is finally the bottom. My conservative “core” long portfolio has done nothing but inflict Abu Ghraib pain for the last year. My only investing joy is the recent availability of leveraged short ETFs, which I buy on rallies and sell when time after time after time the market sinks again to a tidy profit.
Hi there. I see you have invested in the TD e-series index funds and I am curious, what is the difference between the e-series and the i-series?
Scott: the attractiveness of TD’s efunds is that these funds track the major market indexes at the lowest possible costs (for a fund that is, with etfs you can get much cheaper).
Your right that some of these indexes have performed poorly, but over the long term, these index’s will outperform the majority of actively managed funds.
PL: I wouldn’t say that your crazy given your investment time horizon, but only you know how much of a loss you can handle.
Adeem Zafar, the e-series are web only mutual funds with a lower management expense ratio (MER)… it’s worth the extra effort to get it set up and is a great way to invest!
[...] to an earlier post, a few readers have wondered if I have considered increasing the equity component of the portfolio [...]
[...] Capitalist mentioned to me about the importance of rebalancing even in tough times, and he had an update for the Sleepy Portfolio (that I actually use in one of my RRSP accounts). The re-balancing spreadsheet is very [...]
@Phil S
Agree with you, posters here seem really optimistic to me. The U S may still fall into a depression or 10 year no-growth recession – and I don’t see how the Canadian economy grows without US growth.
I held on through the tech bust (didn’t have tech stocks though) but this time looks different. Don’t want to sell and turn a paper loss into a real loss but I’m considering selling some funds to get into beat-up areas like commodities and emerging markets.
[...] The sleepy portfolio [...]
I also just keep buying and rebalancing
But if you want to get really analytical compare the value of your portfolio to a risk free (i.e. 5 year GIC rate). It takes a bit of spread sheet magic.
I also use the spread sheet XIRR formula to give me a real picture of what is happening.
[...] 1st, 2009 · When I last posted an update on the Sleepy Mini Portfolio, a simple, passive portfolio built out of low-cost, index mutual [...]
CC, what is the diff between the Sleepy Portfolio vs. Sleepy Mini Portfolio? I thought the Sleepy Portfolio was your personal and the Mini was your benchmark. Is that correct? Thanks.