RM Portfolios Update: August 2018

Welcome to the August update for the different portfolios which I track here at The Rich Moose blog.

I use Canadian-listed ETFs where possible for the models I share to keep the tracking, purchasing, and selling easy for Canadian readers. However, because they are not available in Canada, I use U.S.-listed 3x Leveraged ETFs and track returns in U.S. dollars for some of the Leveraged Barbell Portfolios.

See the list of my favourite Canadian ETFs on this page.

Vanguard All-in-One Portfolio ETFs

These Vanguard ETFs hold multiple assets inside a single ETF. It's nearly a perfect solution for investors who want to buy just one ETF and hold it forever without worrying about re-balancing, tax trigger issues, and excessive costs. Read my post reviewing these products to get an idea of how they are designed.

While I personally believe there are better ways to invest when you have a larger investment account, these Vanguard Portfolio ETFs are great for newer investors, people who don't want to spend any time thinking about their investing process, and investors who want to minimize costs that would otherwise use a "robo" advisor or a similar, more expensive passive investment approach.

Here are the August monthly & year-to-date returns of these portfolio products (benchmark data).

Vanguard Growth ETF
August:  +0.50%
YTD:  +5.01%

Vanguard Balanced ETF
August:  +0.51%
YTD:  +3.84%

Vanguard Conservative ETF
August:  +0.51%
YTD:  +2.67%

The decision between choosing the Growth ETF, Balanced ETF, or Conservative ETF depends on your tolerance for risk and your investment time-line. The Growth ETF should have the highest returns and highest draw-downs over time while the Conservative ETF will show lower returns with more stability. The Balanced ETF is a middle-of-the-road option.

Time Averaged Dual Momentum Strategy

Dual Momentum is a strict, rules-based investing approach which uses an easy performance evaluation to decide your investment holding for each month.

Most months the holding will stay the same; trades occur around two times per year on average. By evaluating just once each month, you can eliminate the negative effects of market noise and spend very little time managing your investments.

I use a very similar version of Time Averaged Dual Momentum in my own personal portfolio. Looking at the history, I think Dual Momentum investors have a good opportunity to have market beating performance with lower drawdowns.

The Dual Momentum strategy—as tested by Gary Antonacci of Optimal Momentum—has shown fantastic results over complete market cycles. Read his website, book, and research papers to get a full understanding of how the strategy works.

See how my Time Averaged Dual Momentum portfolio would have performed compared to a buy-and-hold indexing portfolio over the past 5 decades by visiting the Portfolios page.

This month we are once again staying in U.S. stocks which have been very clearly outperforming the rest of the world.

YTD Performance:  +8.47%
Last month's performance:  +3.54%
Current recommendation:  XUU.TO

When determining our monthly position, we consider the past performance of just three eligible holdings: XUU.TO, XEF.TO, VSB.TO. The best performer based on specific criteria becomes the only holding for the next month.

Leveraged Barbell Portfolios

The Leveraged Portfolio strategy uses a unique mix of short-term bonds and leveraged stock ETFs to achieve growth while limiting downside risks. It's essentially a barbell strategy where all the risk and growth is contained in a small portion of the entire portfolio.

Although I add a trend factor into the analysis for my personal portfolio, the strategy I use in my non-registered account works very similar to this Leveraged Barbell Portfolio.

If you choose to implement the strategy, make sure you treat each account as a whole portfolio. Do not put bonds in one account and leveraged stock ETFs in another account!

Leveraged portfolios are re-balanced just once per year. For this reason, I will always track the Year-to-Date returns only.

Canadian-listed ETFs (2x Leverage Stock ETFs)

HSU.TO (50%) & XSB.TO (50%):  +7.73%
HSU.TO (30%) & XSB.TO (70%):  +4.91%

U.S.-listed ETFs (3x Leverage Stock ETFs)

UPRO (40%) & BSV (60%):  +8.61%
UPRO (30%) & BSV (70%):  +6.48%

These allocations are just a few examples of how Leveraged Portfolios can work. Leveraged ETFs amplify positive and negative returns so they should always be paired with low-risk assets to meet your personal risk tolerance. In a non-registered account, you may use margin debt to purchase your stock index ETF for somewhat better tracking.

Comments & Questions

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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

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.