[Note: I started the Sleepy Portfolio in 2005 to benchmark my personal portfolio, which was then invested mostly in individual stocks. The portfolio started off with an initial cash infusion of $100,000 but no new money has been added since. The portfolio has the following asset allocation: 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 the Altamira T-bill Fund.]

The Sleepy Portfolio lost 5.45% of its value in the past 90 days. Falling stock prices were the culprit: Canadian stocks were down 8%, US stocks lost 9%, Europe and Pacific lost 10% and Emerging markets were down 7%. Bond prices rose modestly and REITs stayed roughly the same. The portfolio’s asset allocation is not significantly off target, so there will be no rebalancing just yet. As the cash accumulated through dividends and interest is also not significant enough to deploy into the asset class that is the most below target (US stocks), there will be no new transactions either.

Here’s how the portfolio looked at the end of 2Q-2010:

[Sleepy Portfolio at end of 2Q-2010]

This article has 13 comments

  1. I really think this Sleepy Portfolio tracking is important for a lot of new/novice investors who are looking to an investing theme that works over time with an easy way to apply investing knowledge and not get the process too complicated. 5 years later with a huge drop in the market isn’t too bad of a return for something that is cheap, easy and effective.

    • Canadian Capitalist

      @Brad: I started this portfolio to benchmark my own returns — at that time, I was mostly into individual stocks. Over time, I realized that most of my returns could be explained by luck and I had little skill in picking stocks. These days, our portfolios more or less mirror the Sleepy Portfolios.

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  3. @CC, is the Sleepy Portfolio’s asset allocation static? Should you not be reducing your exposure to equities as you approach retirement? What do you make of the rule of thumb that one’s age should equal the percentage of fixed income in their portfolio?

    • Canadian Capitalist

      @DM: I find the age in bonds rule to be too conservative for my tastes. Bogle suggests a slightly more aggressive “age minus 10” in bonds but I intend to be more aggressive than that. The reason is that one of us (my spouse) is lucky enough to belong to a public sector DB plan. So, our household can afford to be even more aggressive, so the plan calls for a 60-40 stock/bond split at the time of my retirement (in another 20 years). Right now, bonds make up about 20% of our portfolios and I’m 36. Add in cash and our portfolio is already a bit on the conservative side. I would start worrying about more bonds in another 5 years or so.

      I really don’t know if I should bump up the bond portion of the Sleepy Portfolio over time. The portfolio is a bit unrealistic because most investors don’t start off with a lump of cash. They save regularly and add their savings to their portfolio. Perhaps, it is the Sleepy Mini Portfolio whose allocation should be adjusted over time. Thoughts?

  4. @CC. Thanks for your reply. I am always interested to hear about people’s decisions re: asset allocation. I can see how your household can afford to be more aggressive. In our case, we have no company sponsored pension plan of any kind to look forward to so we’ll be living exclusively off of RSP/RIF, TFSA and CPP/OAS (if they still exist). My wife and I are both 34 and have 34% of our portfolio in fixed income. Our plan is to ratchet that up 1% per year until (God willing) it reaches 75% at which point we will cap it (remaining 25% will be in Canadian dividend stocks). The only other variable to manage in our case is USD exposure because like you we hold VTI, VEA and VWO. We intend to ratchet portfolio-wide USD exposure down to 20% (currently 48%) over the next 30 years. Anyway, that’s our approach. As to your question, I’m not entirely sure what the Mini Portfolio is. I suppose it doesn’t necessarily make sense to adjust the asset allocation of the Mini Portfolio plan over time because it doesn’t appear to have been designed as a model of your retirement plan. It will also be interesting to see how it performs over time compared to portfolios (like mine) that employ the age=bonds rule. One more question for you – I’m finding it difficult to get data on benchmarks to gauge the performance of my portfolio. I have selected the MSCI All Country index (weighted to match the equity portion of my portfolio) and the DEX Canadian bond index (forget the complete name). Are you aware of an easy way to get the value of these indices?

  5. Thanks for keeping us posted on your Sleepy Portfolio.

    I too have a Globally Allocated ETF Portfolio that I balance once or twice per year…however with the value slip of about 35% in 2008 and the current occurring slippage – I started to poke around the web, wondering if I am being “too Sleepy” with my approach and perhaps, I should be doing something more to protect my portfolio from -35% swings. I have stumbled across the theory/practice of timing the market based on moving averages – I read over a 2006 paper by Mebane Faber and noticed there is now a book out based on this (The Ivy Portfolio) from 2009.

    I was so happy just re-balancing once per year, it was something I could handle. I am not that into stock markets or investing – I work full time and I want something simple 🙂
    But perhaps with a little more work on my side, I’d fair better in the long run if I incorporated these ideas into my own portfolio.

    So…what are your thoughts on this method? Do you think its worth learning and trying to implement? I wonder, since 2005 what shape would your Sleepy Portfolio be in today in 2010 if you would have tried that technique. Essentially I feel it might be worth looking into, but I’m not 100% sold just yet. If I do get convinced however, I don’t think it would be too hard to keep an eye on the market (maybe the last day of every month?) and buy/sell accordingly. I would like it if you could share your thoughts on this – either in the comments, or perhaps in a future blog post.

    Thanks so much,

    CK

  6. Canadian Capitalist

    @DM: Here’s the Sleepy Mini Portfolio. It mimics how people actually invest by regularly adding money to the portfolio.

    http://www.canadiancapitalist.com/sleepy-mini-portfolio-q2-2010-update/

    One of the best sources of past returns is available on the Libra investment page. Since it is an Excel spreadsheet, you are able to run all sorts of analysis on past data. Is this what you are looking for?

    http://libra-investments.com/Total%20returns.xls

    @CK: I’ll look into the strategy you are referring to. It is easy to see that markets are driven by momentum but a priori, I’m not convinced that investors can easily exploit it to their advantage. But, it is certainly worth looking into… I’ll try and get The Ivy Portfolio. Thanks for the suggestion.

  7. I think that it is important to evaluate any system that one might have.

    Performance

    If you look at the performance of the Sleepy portfolio, it looks like it is roughly 16% over 5.25 years.

    Of the top of my head, that is about 3% per year, compounded.

    The rate of inflation in the last 5 years has been an average of about 2%.

    This means that the portfolio is making a real return of 1%.

    One is not going to achieve any financial goals at a rate of 1%.

    Volatility

    In 2008, the Portfolio had a bad year, losing -19.9%.
    In 2009, the Sleepy Portfolio returned 16.8%.

    That is a range of about 36% which is a high volatility.

    Many people would not feel comfortable seeing their investments dive by ~20%.

    Conclusion

    There are many many ways to invest, to trade, etc.

    One needs to abandon things that are not working, and try different ways.

    • Canadian Capitalist

      @Joseph: The Sleepy Portfolio has high volatility because it is 75% in stocks. 5-years is too short a time period to evaluate any strategy that is mostly invested in stocks. “Trying different ways” won’t work for most investors because constantly chasing for winning strategies is one reason why investors don’t even earn market returns.

      http://www.canadiancapitalist.com/investors-behaving-badly/

  8. DM,

    Please correct me if I am wrong but I don’t believe your ownership of VEA and VWO exposes you to US currency risk because the holdings in those ETFs are denominated in Euros and other currencies and are not hedged to the US dollar. When it comes time to sell your VEA and VWO shares the assets will be converted from overseas currencies via US dollars into Canadian dollars (unless you choose to keep them in US dollars.) So while you may wish to reduce your holdings over time to keep them in line with your planned risk profile, I don’t think you need to reduce them in order to limit your exposure to the US dollar.

    Allie

  9. I love what you’re doing here. I benchmark my performance with the performance of my financial advisor who manages a similar amount of money. Keep it going, I’d love to see what happens in 5 more years. Do you think that is a reasonable amount of time(10 years) to evaluate this strategy?