[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.]

So much for Hindenburg omens and death crosses! The market rally in September that saw US markets post one of the biggest monthly gains in the past 10 years meant that the Sleepy Portfolio gained 9.4 percent since our last update. Canadian stocks, EAFE markets (all foreign market returns are reported in Canadian dollar terms), Emerging markets and REITs all posted double digit gains in the past quarter. US markets gained 8 percent and Real return bonds returned 4.7 percent. Only short-term bonds and cash stayed at more or less the same level. Year-to-date, the portfolio has gained 4.8 percent.

Here’s how the portfolio looked at the end of 3Q-2010:

[Sleepy Portfolio at end of 3Q-2010]

The portfolio has accumulated a bit of cash and US stocks are roughly 2 percent below target. So, that’s where the accumulated portfolio income will be reinvested. It would be just the second trade in the Sleepy Portfolio in 2010. If current trends hold, the portfolio will end up spending less than 5 basis points on trading commissions this year.

This article has 14 comments

  1. Do you use the market exchange rate? Or the expensive one from the brokerage?

  2. Isn’t the Altamira T Bill fund closed? And have you found an alternative place to park cash?

  3. CC – have you ever back tested the sleepy portfolio? This could be interesting to see how it compared to active options and to give people something to compare their own portfolio too. Could be a bit of work, but I’d certainly be interested in the 10 year number had this been implemented then.

  4. @Slacker: I use the market exchange rate when reporting returns. But I use the exchange rate that is charged to consumers when actually converting one currency into another. In fact, with 50 percent of the portfolio in US ETFs, the portfolio took an initial 0.75% (50% of 1.5%) hit in currency conversion costs alone.

    @Bad Caleb: It does seem the Altamira T-Bill fund is closed. Thanks for pointing it out. I’ll use ATL5000 going forward.

    @Rob: The Sleepy Portfolio is a real-world portfolio. I account for trading commissions, foreign exchange conversion fees and even bid-ask spreads. I also reinvest dividends or rebalance in real time. So, the returns posted is truly representative of actual returns an investor could obtain. I’m not sure if the portfolio will be a “real world” one if we went back and reconstructed it in hindsight.

    Having said that, I’d be surprised if the Sleepy Portfolio’s return is markedly different from the returns reported from Norm’s Upside/Downside calculator available here:

    http://www.ndir.com/cgi-bin/downside_adv.cgi

    There are some differences though. Norm’s calculator uses theoretical index returns and doesn’t include REITs. Even so, for the 5-year period 2005-09, Norm’s asset mixer reports a return of 4.28% for the Sleepy Portfolio (I added the REIT allocation to Canadian stocks). Actual Sleepy Portfolio returns was 3.92%. Difference would be explained by MERs, trading costs and differences in rebalancing.

  5. I think the portfolio you create here is exactly like what could get on their own – very fair and balanced. Certainly a ‘real world’ model

    My question stems from posts a few month back where I saw comments from people questioning what was very short term performance figures. They were disappointed that it hadn’t returned more, which I could not believe. What were they thinking would happen.

    Your readers are not as sophisicated as you and are not as committed to the indexing strategy as you are. Your committment will get you your returns. Changing course after a bad year or two is what your readers need to avoid.

    My guess is that readers are looking at their own portfolios and are wondering if adopting the sleepy portfolio would have improved things for them. To go back to say, 2000 instead of the 2005 introduction would provide a longer term comparison for people, and I think this would better align their expectations properly.

    For example, if the sleepy portfolio approach would not have generated much in returns over the past ten years or if it did great, I think it would help people to know that. Otherwise they could go in expecting one thing and then change course down the road if their expectations do not materialize.

    Zero criticism in my comments… rather, just a thought and suggestion.

  6. @Rob: I see where you are coming from. Unfortunately, 10-year returns will be all over the map. A portfolio that is weighted mostly in stocks will also have quite a range of 20-year returns. About the only thing we can say with confidence is that odds are very high that stocks will beat bonds over 20-year time periods.

    Stock investors have to get used to the idea that returns will be quite variable. I think a post that shows how much variable by backtesting will be a good idea. I kind of tried this earlier but it will be interesting and instructive to take another look at this.

  7. Great stuff Ram. You’ve definitely made your case for passive investing; when the market goes up, you enjoy the same ride. Spending less than 5 basis points on commissions this year is excellent!

    • @Financial Cents: And, it should be kept in mind that when the market goes down, you’ll get to “enjoy” that ride as well. The point is to control (a) expenses and more importantly, (b) emotions by sticking to a formulaic approach.

  8. The Sleepy Portfolio makes my Adviser look real good…maybe I will not dump him after all 🙂

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  10. It would be useful if you could post your target weightings in the table every time you post the table so we get an idea of how far you drift from your targets before rebalancing. I’m sure you’ve got the targets in another post but why not make it easy for all and list them here as well.

    Also, why do you differentiate cash-cash from T-bill-cash as they are effectively the same thing? Just lump them together on one line called ‘cash/tbills’ with the target and actual percentage shown.

    • @Mark: Yep, I’ll include two new columns for the next update. One on the weightings and the other on the delta between the current and target weighting. I could combine the Cash and Money Market as well. Thanks for your input.

  11. After the month long bull run in September, I would like to retract my earlier doubts about the sleepy portfolio. It looks like it will do very well indeed. (j/k)

  12. Dear Sleepy Investor,

    I’ve got a sleepy portfolio of my own that I started about 5 years ago with a little bit of money at the end of university. This year, I decided to do a little upkeep and look into my annual rate of return.

    Turns out the portfolio has done pretty well. Especially the Chinese companies that I’ve invested in.

    However, I’m really upset at the quarterly ‘low activity fees’. It really rubs me the wrong way to pay for nothing to Scotia itrade. Do you have any advice for fellow sleepy investors to minimize the costs experienced from the investment business.

    Many thanks,

    Matt