You won’t know it from the wild swings experienced by the stock markets in the recent past but the Sleepy Mini Portfolio gained 1.65% since my previous update. To be fair, it should be pointed out that the portfolio showed gains for the last quarter only after the significant rally of the past couple of days. If I had computed returns the previous day the portfolio would have shown a loss of 1.1%.

It is, perhaps, unsurprising to see that bonds have held up their value in the past quarter but it is surprising to see that US markets have held up relatively well compared to Canadian and other foreign markets. Note that the Sleepy Mini 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. A total of $17,000 has been invested in the portfolio and as of November 30, 2011, here’s how it looks:

TDB909 – Canadian Bonds – $3,622 (20.0%)
TDB900 – Canadian Equities – $3,428 (19.0%)
TDB902 – US Equities – $5,719 (31.6%)
TDB911 – International Equities – $5,315 (29.4%)
Total – $18,083
Total Invested – $17,000

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) – Buy units for $194.23.
TDB900 – TD Canadian Index (e-Series) – Buy units for $389.12.
TDB911 – TD International Index (e-Series) – Buy units for $416.66.

We will not be adding any new money to the TD e-Series US Index (TDB902) because the new addition ($6.39) is much less than the minimum additional investment of $100. So, we’ll simply add that amount to the new money added to the TD e-Series International Index (TDB911) fund.

In a comment in one of the earlier posts, a reader wondered how much this portfolio has returned since inception. Using the Excel XIRR function, the annualized return works out to 2.8%. Hardly earth shattering but it is early days for the portfolio yet. I would expect a portfolio such as this to return 3.5% in real terms over the long term.

This article has 5 comments

  1. I agree with you that the future for your Sleepy Mini Portfolio is likely to be brighter than its past, but what makes you choose 3.5% as an expected real return?

  2. I guess it’s possible that this portfolio will return 3.5% in real terms over the long term, but it’s looking less statistically likely… I set up a spreadsheet using XIRR and did the optimization. If inflation runs at 2.5%/year, the sleepy mini port, assuming continued $1000 contributions every quarter, would have to return 6.85%/year for the next five and a half years to have a ten year annualized real return of 3.5%. That’s nearly two and a half times more than the annualized real return over the last four and a half years. It could happen, but I’m not sure I’d expect it.

  3. @Michael James: 10-year bond are yielding 2.63%. The dividend yield on TSX, US stocks and EAFE stocks is between 2.0 and 2.5%. If earnings grow at a 2% real rate, we can expect about 4.0% to 4.5% from stocks. The portfolio has a 80%/20% split and if we assume inflation runs at a 2.0% clip, I think the expectation of a 3.5% real return is reasonable over the next decade assuming stock valuations stay the same.

    @Viscount: In May 2011, the same portfolio showed a 6.1% return. So the results will be sensitive to end-dates and market movements. Also, it should be noted that at the end of 10 years, the average dollar in the Sleepy Portfolio would have been invested for just 5 years. That’s a fair time period for measuring results but I wouldn’t call it long-term.

  4. You cited an annualized return of 2.8% for the sleepy portfolio from August 2007 to November 2011. How does that return compare to say the S&P 500 for the same period?

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