Background: I started the Sleepy Portfolio in 2005 to benchmark my personal portfolio, which at that time was mostly invested in individual stocks. The portfolio started off with an initial outlay of $100,000 and no new money has been added since. This is not a model portfolio; it reflects investment returns that can be obtained in the real world because it accounts for costs such as spreads, trading commissions, MERs, foreign exchange conversion charges etc. The portfolio is assumed to be held in a registered account, so it does not take taxes into account. The portfolio has a target allocation of 5% cash, 15% short bonds, 5% real return bonds, 20% Canadian stocks, 22.5% US stocks, 22.5% Europe and Pacific, 5% Emerging markets and 5% REITs. The entire portfolio (apart from the cash portion) is invested in broad-market, exchange-traded funds (ETFs) trading in the Canadian and US stock exchanges. The cash portion is invested in a high-interest savings account that is available through many discount brokers.

The Sleepy Portfolio gained 4.35% during the first quarter of 2012. The big gains were provided by international stocks: US stocks gained 9.5%, Emerging markets were up 10.2% and European stocks were up 5.9% (all returns in Canadian dollar terms). The portfolio also generated an income of $673 during the quarter.

Here’s how the portfolio looked as of April 4, 2012:
[Sleepy Portfolio Value as of April 2012]

It has been a while since even a single transaction was made in the portfolio and as a result the cash position has now ballooned to 2.4% over target. With European markets stuck more or less in neutral, the allocation to EAFE markets now has a shortfall of 3.55%. Over the next few days, $3,268 worth of cash equivalents will be redeemed and the proceeds will be used to purchase roughly 100 shares of the Vanguard MSCI EAFE ETF.

This article has 5 comments

  1. Nice work, CC. I have a question for you: how do you decide the threshold at which assets should be sold? For example, XRE is 1.74% above its target allocation, and so I assume you will be selling $2400 worth of XRE. However, VTI is only 0.52% above its target, which would result in a pure calculation of a sale of $700, and it is probably not worthwhile to sell this amount of VTI due to commission costs. How do you determine the minimum value at which a sale (or conversely, buy) is worthwhile?

    Thanks in advance!

  2. @Raman: I agree that it wouldn’t make sense to rebalance out of VTI. Larry Swedroe has a 5/25 rule for rebalancing, but I keep it simple for this portfolio. I try and keep commissions to 0.5% of the amount rebalanced. I’m assuming trading commissions for this portfolio is $10, so the threshold for a sell & buy is $4,000. For just 1 buy or 1 sell, the threshold is $2,000. I look into rebalancing once every quarter and the trading threshold means, rebalancing events are few and far between.

    In this update, the only clear case is VEA. I could buy $3,270 worth of VEA by selling the money market fund which will result in just 1 trading commission.—Justin-Bender/Justin-s-Blog/Blog—Justin-Bender/September-2011/Rule-of-Thumb—When-should-I-rebalance-my-portfol

    It’s much easier in our personal portfolios. Since we are in accumulation phase, I buy the asset class that has deviated most from the target when a buy will cost only 0.5%.

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  4. Thanks for the info, CC. I use a similar procedure for my accounts. It’s good to know that I’m not completely out to lunch 🙂

  5. Hi, I have a bit of an unrelated question. I noticed for your U.S. Equity, Emerging Markets, and Intl Equity funds you went with U.S. ETFs. How much do you worry about the exchange rate negatively affecting these investments? I’m putting together a similar self directed portfolio and although I want broad exposure to world markets but I’m worried with the current state of the dollar that over the long term I’ll be at risk. Is this something to worry about?