Since my previous update, the Sleepy Mini Portfolio has gained 5.95 percent. The Sleepy Mini Portfolio was launched in August 2007 with an initial investment of $1,000 with a target allocation of 20% bonds, 20% Canadian stocks, 30% US stocks and 30% International stocks. The portfolio was designed to illustrate how a regular investment program can slowly build wealth over a life time of saving and investing. Another $1,000 was added to the portfolio every quarter since then for a total investment of $23,000 so far. Here’s how the portfolio looks as of July 15, 2013:

TDB909 – Canadian Bonds – $5,298 (18.2%)
TDB900 – Canadian Equities – $5,772 (19.8%)
TDB902 – US Equities – $9,342 (32.0%)
TDB911 – International Equities – $8,745 (30.0%)
Market value – $29,157
Total Invested – $23,000

I’m going to add another $1,000 to the portfolio and rebalance it to the original target allocation using this rebalancing spreadsheet. Here are the results:

Transactions

TDB909 – TD Canadian Bond Index (e-Series) – Buy units for $733.
TDB900 – TD Canadian Index (e-Series) – Buy units for $260.
TDB902 – TD US Index (e-Series) – Sell units for $295.
TDB911 – TD International Index (e-Series) – Buy units for $302

It is interesting to see how market leadership has shifted so much towards US stocks that we are now selling US stocks even when adding more money to the other asset classes. Here are two charts: the first shows the performance of the Sleepy Mini Portfolio performance over the past year and the second shows the performance of the Sleepy Mini Portfolio since inception.

sleepy_mini_portfolio_2Q_2013

Sleepy_mini_since_inception

This article has 17 comments

  1. It would be nice to see a graph from the very start. Would it be possible to add one into your post?

    Thanks,

    James

  2. What’s the weighted MER, like 40 basis points?

    • Canadian Capitalist

      Close enough Jon. The weighted MER is 0.426. Perfect for portfolios of $50K or less.

  3. My portfolio has a weighted MER of 0.17, but is becoming substantial in size, so I was wondering at what size do low cost index ETFs no longer make sense (if ever)?

    Might be an interesting post topic. Index ETFs provide simplicity above and beyond the goodness of matching the market, but assuming that one wants to deal with the complexity of holding hundreds of issues (and the commissions are negligible – my broker provides them for free up to 100 per year), I guess it’s a straight-up calculation at that point? Or am I missing something else.

    • Canadian Capitalist

      I’m pretty sure I’ve covered this before but it might be worth revisiting. The ETF Portfolio I track has a MER of 14 bps. This mutual fund portfolio has a MER of 43 bps. So, the difference in MER in switching to an ETF portfolio is 29 bps. Assume an investor makes 20 trades a year. At $10 a pop, trading commissions will cost $200, which means at around $69,000 the two portfolios will break even.

      I’m curious about your portfolio and your broker. What do you hold? And which broker offers 100 free trades per year?

      • The portfolio I’m using is actually a modified version of the “10-speed portfolio” that you can find on the Scott Burns’ blog on the asset builder website (I have no affiliation with them). What my portfolio holds:
        Spartan S&P 500 from Fidelity (through 401k – only index choice). 20% of portfolio. 5 bps
        VEU – Vanguard international stocks ex US ETF. 10% of portfolio. 15 bps
        TIP – iShares TIPS ETF. 10% of portfolio. 20 bps
        IGOV – iShares international government bonds ETF. 10% of portfolio. 35 bps 🙁
        VNQ – Vanguard REIT ETF. 10% of portfolio. 10 bps
        VDE – Vanguard Energy ETF. 10% of portfolio. 14 bps
        VBR – Vanguard small cap value ETF. 10% of portfolio. 10 bps
        VWO – Vanguard emerging markets ETF. 10% of portfolio. 18 bps
        EFV – iShares international value ETF. 10% of portfolio. 40 bps 🙁

        By broker is Wells Fargo, and since I have a substantial amount of assets with them I get 100 free trades a year.

        In case you’re wondering, I’m a Canadian ex-pat living in the states for a while now. I’ve been following your blog for a long time though.

      • Canadian Capitalist

        @DividendMan: It’s interesting to observe the difference between Canadian and US investment scenarios. 100 free trades is an extremely attractive proposition, not something you’ll find in Canada to my knowledge. The best here is $10 per trade for clients with assets of $50K or more.

        Your portfolio is interesting. Can you share the rationale for VDE? Is that a proxy for exposure to Canada?

      • @ CanadianCapitalist: Yes, the US is better for most things price wise (and pay wise!) I find, including investing options.

        Why do I have VDE? I’m embarrassed to say that there was no real logic behind it except that it made sense when I was reading this: http://assetbuilder.com/couch_potato/couch_potato_cookbook and I figured as long as I stick to one thing with low costs it should be OK. But now that you mention it, this will have a lot of overlap with S&P 500 combined with VEU. Oh well, I’m OK with that overlap for now.

        My larger concern is figuring out if I can use my 100 free trades plus paid trades ($10 each?) to create a much cheaper portfolio with the same diversity. I don’t think it’s possible, but it may be doable with a couple of the high MER ones like TIP and IGOV (maybe I should just by an array of bonds). Come to think of it, I wouldn’t even know how to start buying international government bonds anyway. Oh well… back to being lazy and just keeping what I have in balance.

        At some point, seeing a fee based financial advisor may be worth it (if their fee can be compensated out with reduced MER), but I don’t have much trust in them either.

      • I’m at 6.95 with CIBC InvestorsEdge (with total business of 100K to qualify – and a mortgage counts to the 100K).

        It’s hard to decide to move to another brokerage with that deal. What pisses me off is the lack of a USD RRSP account, but according to my math, it works out cheaper for me to stay here with all my business.

      • Canadian Capitalist

        @Rick: I agree with you. As far as trading commissions go, $6.95 is hard to beat. Are you able to smoothly Gambit in a CIBC InvestorsEdge account? That would take away most of the sting of a lack of RSP accounts.

  4. I have been following this strategy and am creeping up on 50k…

    You mention that this strategy is good for portfolios less than that. What action should I be taking?

    • Canadian Capitalist

      @Kyle: The answer depends on
      (1) Is your portfolio in registered accounts?
      (2) Are you eligible for $10 trading commissions?
      (3) How is your portfolio distributed across RRSP, TFSA and taxable accounts?
      (4) How many trades do you estimate to make in a year?
      (5) What’s the weighted MER of your portfolio?

  5. Answers below:
    1) Yes.
    2) I don’t know the answer to this
    3) The number I quoted is 100% in RRSPs
    4) I’m a buy an hold investor, an am buying on a monthly basis, so it would be 48 trades.
    5) I’m using the funds cited above

    • Canadian Capitalist

      @Kyle: Do you already have an account with a discount broker? If not, who do you bank with? Typically, once you have $50K or more, discount brokers will offer you $10 per trade. For accounts, less than $30K, the trading commission is $30 per trade.

      We’ll assume you are eligible for $10/trade. We’ll assume that you are okay with holding US-listed ETFs such as VTI, VEA and VWO (look up Sleepy Portfolio) and that you can do a Norbert Gambit to convert CAD into USD. Since all your holdings are in a RRSP account, switching from mutual funds to ETFs will not have tax implications.

      It is now fairly straightforward to estimate the break-even point. Assume you are making ‘n’ trades per year and the MER differential between mutual fund and ETF portfolio is 0.30 percent.

      Break even portfolio size = 10*n / 0.003

      If you are going to make 48 trades, the break even size will be $160K. If you are willing to limit the number of trades per year to 15, than the break even will drop to $50K, which is the minimum to get $10 trades anyway.

  6. @ CC: Thanks for the detailed response. I think I have what I need to consider my options.

    I do all my banking with TD, I have yet to set up an account since I didn’t meet the minimums to waive the annual fee. Looks like I can go another year with my current strategy. I do like the ‘set it and forget it’ option that my RRSP withdrawals afford me at this stage.

    Is it possible to set something similar with ETFs through a discount brokerage? Something like accumulating cash and then having the trade made quarterly?

    K.

    • Canadian Capitalist

      @Kyle: You might have to investigate whether you are able to do pre-authorized contributions with ETFs. Some ETF vendors offer this but it is up to the discount broker to pass it through to you.

      Since you are paying account fees, it seems to me that there should be no rush to convert to a ETF portfolio just yet.