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moneysense.ca, 5/09/12
Sleepy Mini Portfolio Q3-2012 Update
Since my previous update, the Sleepy Mini Portfolio has gained 4.95 percent due to a rally in the stock markets over the summer. It is now exactly five years since 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. Another $1,000 was added to the portfolio every quarter since then for a total investment of $20,000. Here’s how the portfolio looks as of September 5, 2012:
TDB909 – Canadian Bonds – $4,198 (19.1%)
TDB900 – Canadian Equities – $4,461 (20.3%)
TDB902 – US Equities – $6,596 (30.0%)
TDB911 – International Equities – $6,716 (30.6%)
Total – $21,972
Total Invested – $20,000
The idea behind the Sleepy Mini Portfolio is to follow a mechanical investment strategy of committing savings to the portfolio on a regular basis. Therefore, we will 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 $396.01.
TDB900 – TD Canadian Index (e-Series) – Buy units for $133.46.
TDB902 – TD US Index (e-Series) – Buy units for $295.20.
TDB911 – TD International Index (e-Series) – Buy units for $175.34.
Unlike the last series of transactions, a larger portion of the current addition to the portfolio is going into bonds. That’s just because the rally in the stock markets has left the bond portion of the portfolio slightly below target.
Readers are often curious about the annualized returns of the Sleepy Mini Portfolio. It is easy to calculate using the XIRR function in Microsoft Excel. Plugging in the dates, contributions and the current portfolio value tells us that the Sleepy Mini Portfolio returned an annualized 3.6 percent over the past five years.
moneysense.ca, 5/09/12
When you mention the XIRR function resulting in a annualized rate of 3.96% I am guessing that does not consider dividends and interest paid during the period as as new cash inflows which are in fact another type of contribution and could be also entered in excel.
Instead are you simply entering and opening and closing balance and then the contributions coming from your savings and not investment income.
Am I right that this difference accounts for the difference IRR amount calculated by Quicken which is always lower than if use the XIRR function in Excel and do not account for dividends and interest income as contributions.
Which method should be used if you want to compare your portfolio performance to a benchmark such as the FPX index or Real world index maintained by Croft Financial?
Also when most financial institutions publish portfolio performance which type of internal rate of return to they quote on annual statements ?
@Rick_J: I don’t know how Quicken calculates rate of return but to me it makes no sense that dividends and interest income are counted as contributions. That’s because the dividends and interest income are reinvested and even if you consider it as contributions, in the previous row they should be counted as withdrawals on the same day. The two rows — one withdrawal and one contribution — should cancel each other out.
To my knowledge, fund performance is calculated exactly the same way. When there are distributions, it is assumed that the distributions are reinvested (without accounting for fees, taxes or brokerage commissions).
[...] Canadian Capitalist provided an update on the Sleepy Mini-Portfolio. [...]
@Rick_J: CC is right… dividends kept in the account are not counted as contributions when you’re computing IRR. I haven’t noticed any large discrepancies between what’s computed in Quicken and the XIRR function in OpenOffice. You may want to double check that the particular line/screen/report you’re looking at in Quicken isn’t also including currency effects, e.g. you’re evaluating IRR in USD but your account and contributions are measured in CAD. (It’s possible to set things up both ways in Quicken.)
[...] my previous update, the Sleepy Mini Portfolio has gained 3.75 percent due to a rally in the stock markets over the [...]