RM Portfolios Update: July 2017

The Growth Portfolio is a "Lazy" investment portfolio I created that is designed to promote investment growth and moderately high returns with some built-in downside protection.

The portfolio is best used for younger investors with long investment timelines. That means a commitment to investing for over 25 years. The longer you stay invested, the smoother and better your overall returns will be.

This Month's Update

With our dollar continuing to appreciate quite rapidly, once again our returns this past month suffered. While this may seem frustrating, remember our dollar dropped steadily from 2012 through 2016, providing enormous gains in Canadian dollar terms.

Also, let's not forget that we're still up for the year with a healthy return!

Currency goes up and down like everything else, so unless you're employing a market timing strategy it's generally best to invested in products that are not currency hedged. Take advantage currency upswings to buy more units of your ETFs!

International stocks did reasonably well across the board this month. The U.S. stock market climbed nicely and so did international developed stocks. Emerging markets performed great in U.S. dollar terms!

However, our dollar climbed around 4% this month alone relative to the U.S. dollar. This translates into more buying power as the prices of international products are now cheaper in Canadian dollars.

Canadian stocks held their own. Financials continued to move down, but on the bright side energy and commodity stocks appear to be turning around... finally.

Bonds continued to drop due to rising interest rates. This could continue for some time. However, it is still important to hold bonds as investors tend to flee to bonds if stock markets get scary.

Gold miners bumped up a little bit. They got hit pretty hard in the last few months, so a correction may be in order.

Overall, this month the Growth Portfolio suffered a bit. This is purely due to dollar appreciation. The underlying holdings did well once the currency factors are stripped out.

This is the monthly change of our four ETFs as of August 1.

  • XAW.TO down from $23.57 to $23.20 (-1.57%)
  • HXT.TO up from $30.58 to $30.79 (+0.68%)
  • HBB.TO down from $44.56 to $44.15 (-0.92%)
  • XGD.TO up from $11.90 to $12.19 (+2.44%)

Our overall portfolio lost $57.33 (-0.69%) this month. I feel like this currency trend may continue for a while, so returns are likely to be a bit lower in Canadian dollars. The best thing is to keep on investing every month in a balanced manner.

I'm very confident that 10 years from now we'll all be sitting pretty fat and happy with a Growth Portfolio.

To keep balanced a close as possible with our new $500 monthly contribution and the cash from dividends, we will buy XAW.TO and HXT.TO.

We'll also purchase HXT.TO as we let that lag the last few months.

Total holdings:

Source: TheRichMoose.com

Real World, Real Time Performance

In our example Growth Portfolio update, we use a few rules. Each January we start with $5000 invested as close as possible to the Growth Portfolio allocations. We invest another $500 on the first trading day of each month. This is in effort to mimic a person who is just starting to invest in their TFSA (careful not to go over your contribution limit - check your CRA Account online).

We don't re-balance each month, instead we use our monthly $500 contributions to try and maintain some balance to the portfolio with purchases only. This keeps our Questrade trading costs low. The cash portion is just a small amount of leftover cash after buying as many ETF units as we can. Cash goes up at the start of each month because of our $500 contribution and any dividend payments.

Growth Portfolio Design

The Growth Portfolio has two overall elements: a growth component and a protection component. The growth components consists of Global stocks in the form of XAW.TO and Canadian stocks in the form of HXT.TO. We know stocks grow much quicker than bonds over time because they are riskier. We also know that, as a whole, when US stocks go up stocks in Canada and around the world also go up. That is to say stock performance around the globe is generally somewhat correlated. What tends to vary the most is how much they are correlated. One year US stocks may go up 10% while Canadian stocks only go up 4%. The next year Canadian stocks may go up 15% and US stocks only 6%. Stocks are also more likely to crash hard for short periods during bad times. This is where the protection component comes in.

When stocks fall a lot, gold and bonds tend to fall only a little bit and sometimes can actually go up. Gold and bonds have a low correlation to stocks and can have a slight negative correlation to stocks. This is because they are perceived to be less risky than stocks so money pours into these assets during "the bad times". Although gold is increasingly considered to be a good short-term "fear asset," it is important to limit your portfolio to no more than 10% gold as a rule. Gold is a non-productive asset and over the long term it is likely to increase no more than the rate of inflation. By investing in gold companies rather than gold itself, the Growth Portfolio offers both gold exposure along with a productive element to benefit from gold miner efficiency.

The Power of Re-balancing

One of the considerations to the Growth Portfolio design is it has you invest in asset classes that behave differently. Canadian stock markets don't always perform the same as other markets around the world at the same time, gold doesn't always go up in line with stocks at the same time, and bonds tend to be a lot more boring than stocks generally speaking. Re-balancing your asset positions once a year can help you in effect sell high and buy low. This adds to your overall return. By not re-balancing too often, you let your winners run and keep trading costs down.

Comments & Questions

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Net Worth Update: July 2017

The upwards glide continues! We are still heavily invested in U.S. stocks which have done well this past month. Our strategy called for currency hedging some time ago; since we are in a currency-hedged product, we are not being negatively affected by our appreciating Canadian dollar.

In June, we finished the month with a total of $562,882 in our investment accounts.

In July we made a regular contribution to our joint Cash/Margin account. Dedicated, regular saving is the key to success in any retirement plan!

I hope through sharing our real numbers, you will be inspired to start saving and investing—it pays!

The Current Numbers

Here are our current Investment Assets as of the last trading day in July. We invest in TFSAs, RRSPs, and a joint Cash/Margin Account. We use a trend investing strategy to determine what we buy and when we sell our positions.

January 1 of the current year is in brackets to help illustrate the change during the current year. Net Worth Change reflects the total increase/decrease of this past month.

The Investment Return is the total year-to-date return on our investment positions. The additional value of contributions are not included in this number.

Investment Assets:  $587,310  ($441,813)
Net Worth Change:  +$24,428
30x Rule Safe Annual Income:  $19,577  ($14,727)
YTD Investment Return:  +19.9%

Background Story

Both my wife and I had the privilege of being able to learn skills and earn pocket money at a young age as both our families were small business owners. This experience translated into great earning opportunities at a young age and we thank our parents for that!

We met when we were young and quickly got on the same page about money. By working as a team, we focused on saving for a future together. We didn't win the lottery, receive an early inheritance, or come into money in any way. We even financed much of our own university costs.

For several years now, we have saved a large portion of our incomes by making calculated decisions about how we spend money. Our Investment Assets are 100% the result of our own hard work and the return on investments.

While we first invested in mainly small and mid-cap stocks (beating the market consistently), I eventually wised up and realized my "savvy" stock picking skills would wear out in time.

As I've mentioned in other posts, even the smartest stock investors can't outperform the index over long periods of time. I also found it tiring to constantly keep up on company news, read quarterly financial statements, and follow the market performance of individual stocks as required in fundamental investing.

After slowly transitioning to indexing over the last few years, in 2016 I ended my dabbling with individual stocks and moved our portfolio to low-cost index ETFs.

We now invest using index ETFs in a trend strategy that I personally developed. To keep our investing costs as low as possible, I use Questrade as my online brokerage as they do not charge trading commissions for purchasing any ETFs. Where index ETFs are not liquid enough for a position size, I am open to using highly liquid stocks which have a close beta to their sub-index.

Comments & Questions

All comments are moderated before being posted for public viewing. Please don't send in multiple comments if yours doesn't appear right away. It can take up to 24 hours before comments are posted.

Comments containing links or "trolling" will not be posted. Comments with profane language or those which reveal personal information will be edited by moderator.