Net Worth Update: August 2018

Monthly Summary

After spending a good portion of August on vacation visiting family, hiking, boating, swimming, and eating great food, I'm back to the real world of work, research, and writing.

After some contemplation, I decided to post an email address back up on the blog for readers to contact me.

While I had an email up a long time ago with some good contacts, there was the inevitable onslaught of bot spam and promotional requests that ended up taking too much of my time. So I got rid of my email and kept things more private.

However, I'm now averaging well over 1,000 readers a month, including some very successful individual investors, financial advisors, and professional portfolio managers. The learning opportunities to be gained by opening up contact are probably to pass at this point.

I am looking forward to your questions, comments, and insights! If I don't get back to you right away, don't be upset; I have a busy life and I prioritize my family and myself before this blog.

I've done a fair amount of research and writing on Dual Momentum strategies in the past couple months. This included posts on adding more assets to Dual Momentum, taking a closer look at the drawdowns, analyzing how a Japanese investor would have done following my Time Averaged Dual Momentum model in the aftermath of the 1980s bubble, and seeing how leverage would change the results of my TADM model.

In August, markets were positively on a roll. Particularly in the U.S.. Everything from the S&P 500 to small caps to the tech-heavy NASDAQ 100 did extremely well. There is no doubt, the U.S. is still firmly in a bull market!

The U.S. markets continue to hit new highs, but International markets are still lagging. Both the EAFE and Emerging markets have been struggling and hit new lows for 2018 during August. They are both essentially flat over the past 12 months now.

I'm still keeping a close eye on these markets, watching for an entry signal if one appears. It's a reminder that good investing is a patient game.

Thanks to following a version of my Time Averaged Dual Momentum in about half of our portfolio, I achieved a relatively strong return for August. My allocation to the NASDAQ 100 also did well, pulling up our non-registered account.

My small bet on oil looked good at first, but then turned and has gone into the red. It hasn't hit my exit indicator yet, so I am still holding the position. We'll see if the bet turns and begins to show profits, or if it continues to fall and I get kicked out to try again another time.

Earlier this month I moved most of my cash from U.S. dollars to Canadian dollars. My U.S. dollar trade was profitable, earning about 2.5% in roughly 5 months plus a small positive spread on the interest.

While most investors would probably put their money in a bond fund, I am quite happy playing the currency markets with a couple trades each year. Currency trading is cheap to execute, more flexible than fixed income, and more efficient from a tax perspective.

In July, we finished the month with a total of $691,890 in our investment accounts. We had a pretty good month in July and saw a gain of nearly $15,000 in net worth.

That momentum continued into August where we saw a good monthly investment return of +3.35% on our portfolio. This means we are positive for 2018 on an investment return basis.

Of course we also contributed more money to our investment accounts as per our usual practice.

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

The Current Numbers

Here are our current Investment Assets as of the last trading day in August. We invest in TFSAs, RRSPs, and a non-registered joint margin account.

We use a version of Dual Momentum and a moving average/breakout trend strategy to determine what we buy and when we sell our ETF positions. I often employ leverage in positions, so our results tend to swing a bit more each way than the underlying indices.

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 including new contributions.

The Investment Return is the total year-to-date return on our investment positions, corrected for new contributions at the end of the month. Due to the end-of-month adjustment, the true rate of return on a daily adjustment basis would be slightly different dependent on the intra-month return on the new contribution.

Total Investments:  $720,094  ($670,856)
Monthly Net Worth Change:  +$28,204
30x Rule Safe Annual Income:  $24,003  ($22,362)
YTD Investment Return:  +0.41%

Background Story

My wife and I are late-20s professionals working in the public sector. We don't earn enormous salaries, but by keeping our spending under control we save a large portion of our incomes each month. Our Investment Assets are 100% the result of our own hard work and the return on investments; we have not received any gifts or won any lotteries.

While we both work in pension careers, for this purpose we don't include pension values in our net worth nor pension contributions in our savings. Our investment assets and contributions are from our net paycheques.

We invest primarily with index ETFs using a dual strategy portfolio that I personally developed and maintain. To keep our investing costs as low as possible, I use Questrade and Interactive Brokers as my online brokerages. Questrade is my go-to choice for registered accounts. Interactive Brokers offers powerful tools, low commissions, and low margin interest for our joint margin non-registered account.

Comments & Questions

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7 Replies to “Net Worth Update: August 2018”

  1. “I am quite happy playing the currency markets with a couple trades each year. Currency trading is cheap to execute, more flexible than fixed income, and more efficient from a tax perspective.” Daren

    How do you go about this Daren? Are you using a FX account; buying currency ETFs or simply using the brokerage USD-CAD rate?

    Also, could you please comment as to your methodology to determine the currency to be invested in at a given time? Thanks.

    1. Daren (Editor) says:

      I currency trade cash only (no leverage) in my Interactive account. I’m not looking for home runs with this, just trying to make a couple percent per year over the cash interest the brokerage pays (~1.8% right now I believe).
      My signals are moving average based and because it’s currency I go “long” and “short” (switch from one currency to another in the pair).

  2. Hi Daren.

    Could provide more details about your signals to go long or short on a currency?

    Is it something like?

    200-days-SMA (CAD) > 200-days-SMA (USD) ==> go long on CAD; short the USD and viceversa?

    I am trying to get a rough idea and my goal is to apply this to DM.

    Consider that DM commands to be invested in US equities and also consider my trades are for FREE (National Bank for instance).

    In such a case, I can decide whether to invest in an unhedged ETF or a hedged one. If I can determine the direction of the USD/CAD pair; then I can switch from hedged to unhedged.

    Given that ultimately I am trading the same market (the US in this example); then I don’t have to worry about this becoming a whipsaw trade (well, I can get whipsawed by the currency movements; but not by the underlaying stock market).

    Am I making any sense? I’d love to hear your take on this.


    1. Daren (Editor) says:

      I use a stretched moving average convergence indicator. It’s just one way of doing this, you could also uses a 10 & 40 exponential moving average crossover (or similar), ATR bands, Keltner bands, and many more. The exact indicator doesn’t really matter.
      Your strategy is likely to work if you monitor your signals frequently and you realize that you are likely to be incorrect and lose a bit on the switch 60 percent of the time. In one currency pair just a handful of trades in a decade are likely to be very successful.
      Every now and then it works great though: 2004-2007, 2009, and 2013-2015 saw some great, profitable trends in the USD/CAD going both ways.
      Keep in mind that a whipsaw is a whipsaw. Losing money on a currency trade is identical to losing on an equity trade.

  3. This was a great explanation. Thanks Daren. I really appreciate it.

    Other micro-optimization I want to add to DM has to do with picking a LARGE CAP ETF vs a ALL CAP ETF. Say for instance DM signals to be invested in US Equities; at that point I can compare the relative strength of XUU vs VFV (just an example) and pick the stronger. In fact, I can do this once a month and change from one to the other (if the relative strength changes) while DM remains in the US.

    This assumes my trades are free and of course I understand that the risk of a whipsaw still exists given that the underlaying components of these ETFs are not identical. Yet, I think the whipsaws won’t be too dramatic given that it is the same market and ultimately there’s a good overlap between these instruments.

    If you get a chance; I’d appreciate your input on this.

    1. Daren (Editor) says:

      Although I haven’t run the exact numbers with each trade to compare the difference, on the surface I really don’t see the benefit in comparing relative strength of the Total Market Index vs. Large Cap Index in a DM portfolio. More than 80 percent of the Total Market is Large Cap, so you’re banking on less than 20 percent of the holding pushing the returns meaningfully higher or lower. To me it seems like mining for pennies.
      The Total Market has outperformed the Large Cap 11 of the past 17 years. That outperformance was barely more than 0.5 percent per year. I say, all other things equal, stick with the Total Market Index and keep things simple.
      That’s not to say that I believe relative strength doesn’t have its merits. I would have to do a proper backtest, but I think it could be very effective in a static allocation approach. For example, if I have a portfolio targeting 33% U.S. stocks, 33% international stocks, and 33% bonds I could do an easy relative strength evaluation once a quarter or so using a long lookback to minimize trades. On U.S. stocks I pick the highest relative strength between large cap and small cap, with international I pick the highest relative strength between developed and emerging markets, and with bonds I pick the highest relative strength between investment grade corporates and treasuries.

  4. Thanks for the answer Daren.

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