Since my previous update roughly three months back, the Sleepy Mini Portfolio has lost 6.4% of its value due to sizable corrections experienced by stock markets around the world. Every stock fund in the portfolio dropped in value but bonds fulfilled their role of providing a ballast. Recall that the portfolio started out with an initial investment of $1,000 in August 2007 and $1,000 was added to the portfolio every quarter ever since:

TDB909 – Canadian Bonds – $3,701 (22%)
TDB900 – Canadian Equities – $3,342 (19.9%)
TDB902 – US Equities – $4,953 (29.5%)
TDB911 – International Equities – $4,792 (28.5%)
Total – $16,789
Total Invested – $16,000

Despite the market volatility, the whole point of a portfolio such as this is to simply add money periodically while resisting the urge to divine which way the markets are headed. With that in mind, we’ll now add another $1,000 to the portfolio and rebalance it according to our original asset allocation — 20% bonds, 20% Canadian stocks, 30% US stocks and 30% international stocks — using this rebalancing spreadsheet. Here are the results:

Transactions

TDB909 – TD Canadian Bond Index (e-Series) – Sell units for $143.63.
TDB900 – TD Canadian Index (e-Series) – Buy units for $215.43.
TDB902 – TD US Index (e-Series) – Buy units for $383.48.
TDB911 – TD International Index (e-Series) – Buy units for $544.72.

Notice how rebalancing requires selling an asset class that has increased in value (bonds in this case) and buying asset classes that have declined in value (stocks in this case). It happens to be the mirror image of what we were doing earlier this year when the bulk of our contributions went to bonds which was the laggard asset class.

[Sleepy Mini Portfolio as of August 31, 2011]

This article has 14 comments

  1. I really like how you consistently balance the portfolio and stay true to the original targets.

    Your spreadsheet is a nifty way of keeping things organized and for re-balancing.

  2. Is this a purely theoretical portfolio or an actual one? For a small portfolio, it doesn’t make sense to me to pay a $20 transaction fee on a $143 balance, especially when you get hit twice – once for selling and once for buying.

    • @Phil S: Since this portfolio is built with TD e-Series mutual funds, there are zero costs to buy or sell. This is a practical portfolio that anyone can implement and the returns reported are after costs, mainly MERs but also tracking errors.

      @The Wealthy Canadian: I use this spreadsheet myself for my kids’ RESPs. And yes, it is very handy.

  3. This question must have been asked before (possibly even by me), but have you or do you ever track against portfolios with different allocations?

    This is a simple 4 product and largely comprehensive portfolio, but does not include any allocation to real estate, or any other bias (intrinsic value, capitalization etc or even fundamental vs. cap-weighted indices) you might use in your personal portfolio (although my impression is you don’t use these).

    It would also be interesting to see the portfolio tracked against a straight up equity index such as the S&P500 or even Vanguard’s VTI to demonstrate the utility of diversification.

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  6. Remember, to always compare against total return. VTI price alone will skew the results.

  7. @Sampson: My portfolio is very similar to the Sleepy Portfolio except for some minor variations. I suppose I could compare this portfolio against something like the MSCI World (C$) Index. It’s more work but can be done.

    @Slacker: Agree. It’s total return that counts. The additional wrinkle here is that one must add exactly the same amount to the index on the same date as well to get an apples-to-apples comparison.

  8. Yahoo Finance is the only site I am aware of that can help you with dividend-adjusted prices. If you use their the historical prices tool, you get the actual close as well as the split and dividend adjusted close (assuming you reinvested dividends).

  9. A return of $789 over 4 years is not very good. How long will you continue this portfolio with returns like this?

    • @Dennis C: Any investment strategy requires time to work its magic. Though this portfolio was started 4 years back, only $1,000 was initially added. $1,000 has been added every quarter since then, so the average dollar in the portfolio has been at work for only 2 years. That’s not nearly long enough to evaluate the success of this portfolio.

      In any case, what other alternative do you have? You can’t extract blood from a stone. The returns of any portfolio that is mostly in stocks will largely depend on the performance of the stock market.

  10. A better alternative is to invest in gold. The trick being to know to invest in gold just before it raises in prices. :)

  11. Here’s a hint, re balance by units…back test it…you would have been way up by now. The only reason advisor’s want you to re balance by dollars is…more comish for them.

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