The Balanced Portfolio is a great solution for investment growth while reducing the elevated risk of holding all stocks. The Balanced Portfolio uses ETFs to achieve diversification at a low cost. Gold companies and bonds help smooth out returns during stock market declines. The Balanced Portfolio would be considered an aggressive strategy. To reduce risk, simply increase the bond allocation and reduce the stock allocation proportionally.
I use the Balanced Portfolio as the basis for my estimates in all of my blog posts. I believe it is realistic to expect a nominal return of more than 8% over a long time period. My blog posts often use a 6% real annual return rate because I adjust for inflation.
The Balanced Portfolio consists of 4 Index ETFs. Index ETFs are free to purchase if you use Questrade as your brokerage.
- 60% iShares Core MCSI All-Country Ex-Canada Index ETF (XAW.TO)
- 20% Horizons S&P/TSX60 Index TR ETF (HXT.TO)
- 10% Horizons Canadian Select Universe Bond Index TR ETF (HBB.TO)
- 10% iShares S&P/TSX Global Gold Index ETF (XGD.TO)
*XIC.TO may be substituted for HXT.TO in registered accounts or for middle or lower income Canadians in Cash/Margin accounts. ZAG.TO or VSB.TO may be substituted for HBB.TO in registered accounts or when use of short-term bonds is preferred. XGD.TO may be substituted to CGL-C.TO if gold bullion trusts are preferred.
These returns are based on re-balancing the first trading day of January each year. I don't include regular contributions while calculating my returns so your results will vary. Trading costs and taxes not included. *2015 uses VXC.TO instead of XAW.TO
2015 Return: 7.78%
2016 Return: 12.97%
Risk: The Balanced Portfolio is an aggressive portfolio strategy that is likely to decline substantially during market downturns. The information is an opinion and should not be interpreted as personal financial advice. Stated returns are provided by third party sources and may not be accurate.
I invest in ETFs which may from time to time include the ETFs listed here. However, I do not derive any financial benefit nor do I collect any revenue should you invest in the securities listed.
Canadian Dual Momentum Strategy
The Dual Momentum Strategy is an alternative to a passive, buy-and-hold investment strategy. Dual Momentum was researched and promoted by Gary Antonacci using U.S. based funds. For simplicity, I attempt to use Canadian based ETFs which closely follow the original strategy.
Dual Momentum requires monthly monitoring and may be subject to higher risks as 100% of your portfolio is invested in just one asset class. To reduce risk as much as is practicable, we use broad based indices and low cost ETFs which are liquid.
Investing in a Dual Momentum Strategy requires monthly evaluation of the historical performance of three Index ETFs. Gary Antonacci shares a simple 12-month lookback that has good results. Based on research, acceptable lookback periods range from 6 months to 12 months; a shorter lookback period results in more trading.
These are the three ETFs which I consider in my monthly updates:
- iShares Core S&P U.S. Total Market Index ETF (XUU.TO)
- iShares Core MSCI EAFE IMI Index ETF (XEF.TO)
- iShares Core Canadian Short-term Bond Index ETF (VSB.TO)
In my monthly evaluation, I use an average of the 6-month and 12-month recent performance. The entire portfolio is then 100% invested in the best performing fund using this measure.
Based on Gary's research, the maximum drawdown over the past 45 years would not have exceeded 20% of the portfolio value. The overall compounded return was higher than the MSCI World Index. This results in a higher than average risk-adjusted return.
Future performance may be different, but it is reasonable to believe drawdowns will continue to be relatively low using this strategy when compared to buy-and-hold strategies.
2015 Return: 16.63% (no trades)
2016 Return: 6.58% (2 trades)
Risk: The Dual Momentum strategy is likely to decline substantially during market downturns. The information is an opinion and should not be interpreted as personal financial advice. Stated returns are provided by third party sources and may not be accurate.
I invest in ETFs which may from time to time include the ETFs listed here. However, I do not derive any financial benefit nor do I collect any revenue should you invest the in the securities listed.