Friday, October 31, 2014

Beating the TSX and the Index Funds

In the interests of accuracy, I have to add this: I may be beating the purely Canadian index funds but that is of no real concern. It is the overall allocation that is important. I pulled out of the States when the Republicans were threatening to close down the government. That was a portfolio killer for me.

The allocations of my imaginary portfolios were not affected by the politics of the moment. And it was the superior allocation of these imaginary portfolios that drove them into the lead. If I had had the strength to adhere to my own personal allocation plan, I might have won but I didn't and I didn't.

I am working on an updated post that can be found here: Revisiting my imaginary portfolios.
My wife and have our self-directed plans at a couple of financial institutions. One, TD Canada Trust, has a new feature: Performance.

I checked our accounts held with the TD. Each of our plans beat the S&P/TSX Composite Index in the past month and therefore we also beat the index funds tracking the Toronto exchange. When I looked at the graph for the past 12-months, the plan used for the illustrations, the green line, ended the period a notch above the TSX blue line. I beat the index funds again. And, more importantly, I was well ahead of my own, personal financial goals for the period.

My portfolio, the green line, ends the past 12-months above the blue TSX line.

When the past 12-months are examined, the Yanks are ahead; no surprise there. Since I created some purely, online portfolios based on some well-known lazy-investor approaches, I am not surprised that I have beaten the index funds based on Canadian investments. Not one of the index-based portfolios I created has outperformed my real investments examined in their entirety. (Note the amazing lack of volatility in my featured portfolio.)

Still, the Yanks are beating me and that shouldn't be. I should have more exposure to the American market. I can do, and I will, do better.

When I checked some of my other accounts and created a chart going back to end of 2010/beginning of 2011, I found the spread between my investments and the TSX really grew with my investment mix well ahead. The missing US investment really hurt.

Note consistency of high yielding portfolio (green) compared to TSX (blue).

Still, the best thing about my approach, in my opinion, is the constant dividend income. I need dividend income in order to live in retirement. My dividend income is far greater than the dividends delivered by an index fund tied to the TSX.

Come January, this blog may post a portfolio of  high-dividend picks. All must be solid companies with no obvious financial storm clouds on the horizon.

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