RM Portfolios Update: October 2018

Welcome to the October 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 October monthly & year-to-date returns of these portfolio products (benchmark data).

Vanguard Growth ETF (VGRO.TO)
October:  -5.05 percent
YTD:  -1.01 percent

Vanguard Balanced ETF (VBAL.TO)
October:  -3.91 percent
YTD:  -0.13 percent

Vanguard Conservative ETF (VCNS.TO)
October:  -2.77 percent
YTD:  -0.25 percent

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.

12-Month 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 fewer than 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 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.

In my model, I evaluate the holding each month based on the 12-month gross performance of the MSCI USA Index, the MSCI ACWI ex-USA Index, and the rolling return of 3-month U.S. Treasury bills.

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

Index Year-to-date Performance:  -0.92 percent
Index October Performance:  -6.94 percent
Current recommendation:  U.S. Stocks

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%):  -0.18 percent
HSU.TO (30%) & XSB.TO (70%):  +0.03 percent

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

UPRO (40%) & BSV (60%):  -1.09 percent
UPRO (30%) & BSV (70%):  -0.83 percent

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: October 2018

Monthly Summary

October saw a return to more market volatility. While the markets were rocky, the weather here in Alberta was great! Sunshine, warmer weather, and a pleasant melt of September's snow.

Also, weed is now legal in Canada! Things don't seem to be much different. Canada's not falling apart, people are going to work, it doesn't seem to be prolific, but apparently there's a lineup outside most cannabis stores.

It turns out that not everyone has a desire to become a regular "cannabis consumer" now that you can buy it from a local store. Life goes on like it has...

I'm starting a new bi-weekly post on markets that I track and the nature of my investing decisions, so I will not be going into much market detail in these monthly update posts anymore.

This post will be just about net worth, my current positions, and maybe the occasional personal tidbit.

Throughout October I carried a heavy allocation to U.S. stocks. The Dual Momentum signal was in U.S. stocks for the month, so I am holding XUU.TO as per that signal. As you can expect, we saw a reasonably big decline for the month in our registered accounts.

In our non-registered account, I sold my exposure to the NASDAQ-100 and booked a profit of approximately $10,750 on that trade.

I also entered in several new positions. I bought a $180,000 position in gold. So far that trade is in profit. I also took a $70,000 position on Brazilian stocks (and the underlying currency). That trade is in profit as well.

Finally, I made a currency pair trade, selling around $65,000 Canadian dollars and buying nearly 730,000 South African rand. The rand is a major emerging market currency.

This means right now I am holding $290,000 in U.S. stocks, $180,000 of gold exposure, $70,000 of Brazilian stocks, about 730,000 ZAR, and the rest is in Canadian and a bit of U.S. cash.

In Septemer, we finished the month with a total of $724,710 in our investment accounts. If you recall, we had a slight loss for the month but our net worth in September increased a bit thanks to our savings.

October generated a negative monthly investment return of -1.15 percent on our portfolio. This is clearly a lot less than the -5.8 percent return we saw in U.S. stocks. The advantage to running two different strategies is that one strategy's performance can offset the performance in the other strategy, smoothing overall returns.

We contributed more money this month to our portfolio as part of our regular savings plan.

So far this year we've saved over $60,000—not including pension contributions. We have once again achieved our savings goal for the year. Rumour is the TFSA limit will increase to $6,000 for 2019, so we are saving for that.

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 October. 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:  $721,342  ($670,856)
Monthly Net Worth Change:  -$3,368
30x Rule Safe Annual Income:  $24,044  ($22,362)
YTD Investment Return:  -1.49 percent

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 percent 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.