When I last posted an update on the Sleepy Mini Portfolio, a simple, passive portfolio built out of low-cost, index mutual funds, I noted that investing feels like getting a hand stuck in a meat grinder. Well, not anymore. Less than 90 days later, stocks have rocketed upwards and the Sleepy Mini Portfolio now shows a more modest loss of 10%. Here’s how the portfolio looked as of May 29, 2009:

TDB909 – Canadian Bonds – $1,115.84 (17.8%)
TDB900 – Canadian Equities – $1,428.62 (22.7%)
TDB902 – US Equities – $1,790.70 (28.5%)
TDB911 – International Equities – $1,947.55 (31.0%)
Total – $6,282.72
Total Invested – $7,000

It would have been nice if stock prices had stayed low and allowed us to put more cash to work at cheaper prices. But, since the gyrations of the markets are unpredictable, the best that those of us who can’t time the markets can do is staying the course. 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.

We’ll use the nifty rebalancing spreadsheet to figure out how much of each holding should be purchased to bring the portfolio to target. Unfortunately, we run into a problem as the spreadsheet suggests buying just $27.92 of TDB900 but the minimum purchase for TD e-Series Mutual Funds is $100. So, we’ll simply use the portion that would have gone to purchase Canadian stocks to buy Canadian bonds instead.

Transactions:
TDB909 – TD Canadian Bond Index (e-Series) – Buy units for $368.62.
TDB902 – TD US Index (e-Series) – Buy units for $394.11.
TDB911 – TD International Index (e-Series) – Buy units for $237.26.

Investing so simple, it lets you have a life.

[Sleepy Mini Portfolio Update for 2Q-2009]

This article has 20 comments

  1. Nicely organized! Wondering what the “TDB” refers to… TD “B”? Looks like a good asset allocation. I’ve also noticed TD’s e-series funds try to mimic the respective ETFs. Some use same index and try to have as low a possible MER. Still more expensive than their ETF, but no commission to buy it. So it’s pretty close, trying to choose one over the other.

  2. If you want to invest an amount between $25 and $100 you can get around the minimum purchase restriction by setting up a preauthorized purchase plan for the amount you want to add, then canceling it after the first investment.

  3. I’m wondering if anyone could comment on what will happen to the Canadian Bond Index fund should rates start to rise. My understanding is that they will be negatively affected, but does this mean these funds will lose money for the duration of rising rates?

  4. Canadian Capitalist

    @MoneyEnergy: TDBxxx refers to the mutual fund code. These funds are TD e-Series funds that are discussed elsewhere on the blog.

    @Darryl: I feel it is far too much bother to do a minimum purchase and then cancel it. In a real portfolio, it is possible to do a PPP every paycheck.

    @John: Check out the duration of a bond fund. It tells you how long the bond fund will take to break even for every 1% increase in interest rates. Your point on bond funds is a good one; I personally use XSB (the short-term bond ETF) for larger portfolios. Unfortunately, TD doesn’t have a cheap short-term index fund.

  5. I did just that, only I invested on March 3th this year.

    It shot up more than 21%.

    Yup, I can time the market! bring on the press.

  6. I’ve decided that I’m definitely going to invest at least half my income in a mini portfolio. However, I’m thinking to also take the Core-Satellite approach to investing. Have the Core, say 50% be the mini portfolio but have the satellite be ther other half, where I can do some active investing. I guess the key is to not have too many “satellites” (stocks) orbiting, and not be overexposed in any one stock. As for the Canadian portion of the portfolio, I’m already doing it through a group RRSP so unfortunately have to use the higher MER of the mutual funds available, but will go with e-funds for the other three.

  7. Am I correct to note based upon the graph that this portfolio has not yet actually made any money? I understand that it should be down lately but in 2007 it should have been up… am I just reading the chart wrong?

  8. Canadian Capitalist

    @Cam: I think the portfolio was briefly positive in May 2008 but it’s been negative most of the time. I don’t find it surprising at all because the S&P 500 peaked (I think) in August 2007.

  9. @CC: I guess I’m just suprised. The major drops only really occured in the later half of 2008, I expected that the portfolio would be doing better. I guess at this point in this portfolio, market timing is pretty much its bane, over time I would expect that it will correct and bounce up. At least I would hope.

  10. CC: on the topic of bonds, how do you weigh the options between TDB909 (MER 0.48, but longer term) vs. something like TDB967 (MER 1.05, but a short-term bond) vs. XSB. I have a relatively small portfolio and make monthly contributions.

  11. Canadian Capitalist, do you rebalance every time you add new money? If not, at what threshold do you rebalance?

    And how often do you add new money? Thanks!

  12. dear cc,

    i recently recommended to a friend that they by VTI etf for their rrsp account, and after a little while got a question about why the account had lost money even though the stock price had gone up… they then saw that it was the exchange rate…

    I realized that it’s the exchange rate.. i’m getting screwed. I don’t like having US fund stocks – exchange rates can be so volatile, you save a tiny amount on fees and then can easily have a 10% overall loss on exchange.. or even more. I’ve looked at exchange rate histories, and they change way more than the stockmarket index, so if you have to take out your money when exchange is bad all your losses are going to be there. since the Canadian trends pretty much mirror the US regardless of exchange rate, i think i’m going to stick with Canadian funds instead. Too bad it’s too late now.

    any thoughts on this?

  13. @ anon: CC has a post covering this topic -April 17th 2007- one of his comments “My personal preference is to invest directly in US-listed ETFs without hedging currency exposure because in my opinion, hedging is simply chasing performance after the Canadian dollar has run up significantly. Recall that hardly any mutual fund or ETF engaged in hedging when the loonie was in the dumps but now it is a popular selling feature. Why pay an extra fee when currency fluctuations will even out over the long term? It is so predictable – investors are always fighting the last war.” Another thing I took from that post was the advantage of the loonie getting stronger was that you have more purchase power and can buy more VTI for your dollar…sort of like dollar cost averaging.

    I looked hard before buying VTI myself and decided it was the best option for value. Your not paying expensive MER’s , your not paying for hedging..you just pay for a top notch fund at low value.

    Thought I would jump in just in case CC didn’t have time to get back to you.

  14. @ anon: One other thing I wanted to add was that I knew I was holding the fund long term ie>10 yrs so forex costs were not a big deal.

  15. Canadian Capitalist

    @ghandy: In my personal portfolios, I use XSB for larger portfolios and TDB909 for smaller portfolios. Yes, I agree that short-term bonds are better but an extra 0.5% is a lot to pay extra.

    http://www.canadiancapitalist.com/short-term-versus-long-term-bonds/

    @jlocicero: I rebalance every time I add money. Actually, I’ve been lazy about rebalancing the original Sleepy Portfolio. I will do that one of these days and post it here.

    @anon: This topic has been covered so many times in past posts. Please search for “currency hedging”. Here’s one such post:

    http://www.canadiancapitalist.com/the-costs-of-currency-hedging/

    As John points out, if you take on equity risk, I don’t see why you should avoid currency risk. The costs of hedging are certain; it is going to cost you 1% per year but over the long-term that is a high hurdle to overcome just to break even.

  16. @Canadian Capitalist
    That’s interesting to learn. When I read about portfolios and rebalancing, you are often encouraged to rebalance every year. I assume that means once a year, but if I remember correctly, the authors never talk about adding new money. Or they add new money once a year.

    Do you think there is any downside to rebalancing so often? Do you have a threshold amount of new money you must add, say $1000, before you will rebalance?

    Thanks!

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  19. From what I understand, you should not rebalance too often. You want a portion of your portfolio that’s doing unusually well to build up some steam! Minimum time I’ve seen suggested is every year, but in times like these there may be key points where you should rebalance right away.

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