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 but no new money has been added since. This is not simply a model portfolio; it reflects investment returns that can be obtained in the real world by accounting for costs such as spreads, trading commissions, MERs, foreign exchange conversion charges etc. For example, when the portfolio was first assembled in 2005, it cost $29 to make a trade and 1.5 percent to initially convert Canadian dollars to buy US securities. Note, however, that 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.

4Q-2012 Update

The Sleepy Portfolio gained 2.52 percent since my previous update. During the calendar year 2012, the Sleepy Portfolio gained exactly 10 percent. It is instructive to compare the current portfolio holdings with that of year end 2011. We find that over the course of the year, positions in real return bonds and REITs were trimmed back and additions were made to positions in Canadian equity, Developed Markets ex US and emerging markets. Rebalancing the portfolio helped because developed markets and emerging markets were among the best performing asset classes of 2012.

Here’s how the portfolio looked as of December 31, 2012:

Asset Type Security #s Price Current Value % Portfolio Target % Delta
Cash TDB8150 9144 $1 $9,144 6.34% 5.00% -1.34%
Bonds TSX: XSB 705 $29 $20,304 14.07% 15.00% 0.93%
  TSX: XRB 275 $26 $7,090 4.91% 5.00% 0.09%
Canada Equity TSX: XIC 1445 $20 $28,380 19.66% 20.00% 0.34%
US Equity VTI 440 $73 $32,063 22.22% 22.50% 0.28%
International Equity VEA 945 $35 $33,106 22.94% 22.50% -0.44%
Emerging Markets VWO 170 $45 $7,528 5.22% 5.00% -0.22%
Other TSX: XRE 392 $17 $6,711 4.65% 5.00% 0.35%
Total       $144,325    

There will be no new transactions because all asset classes are now more or less on target.

Portfolio Expenses

It is worth noting that the weighted average MER of the portfolio is currently a miserly 0.21 percent. That means the portfolio incurs a MER cost of just under $210 per year per $100,000 balance. If the same portfolio were invested in typical Canadian mutual funds that charge a MER of 2.5 percent, the MER cost would be $2,500.

Of course, a portfolio composed of ETFs will incur trading costs. But the Sleepy Portfolio gets by with very little trading. During the last year, five trades were made in the portfolio for a total trading cost of $50. The portfolio also incurred costs involved in converting currency to purchase US-listed ETFs. These costs added up to about $51. Expressed as a percentage of average portfolio value during the year, trading costs amounted to just under 4 basis points. The total expenses incurred by the portfolio in 2012 was therefore just 25 basis points.

This article has 5 comments

  1. What are your thoughts on tilting your portfolio with small caps, value, and/or small-cap-value? How close does this mirror your artual asset allocation today?

  2. @James: I think it is worthwhile tilting the portfolio towards value and small cap. I tend to consider all equities as a bunch of stocks but the evidence is pretty strong that small cap and value stocks do not quite march to the same drum beat as the over all market. I’ve always been meaning to write a series of posts on this topic and I will get to it at some point.

    Until late last year, my personal asset allocation was exactly the same as the Sleepy Portfolio even though I’m in my late 30s and a 25 percent allocation to fixed income might be considered on the low side. Last year, we bought a new house, which meant getting into a mortgage again. For me, it meant owning about 25 percent of the portfolio in bonds yielding less than 1.5 percent and paying 3.5 percent on the mortgage. It did not make much sense, so I sold the bonds and paid down the mortgage balance. Once the mortgage is paid off, I will go back to the 25 percent asset allocation to bonds.

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  5. Hey you have made about $5,500 per year on average, that’s pretty good compared to the horrible savings interest rates with banks.