Friday, January 6, 2017

Portfolio anchored by mutual funds may outperform an index ETF one

For years I have followed index investing. I was a bit of a believer at one point. But then I noticed some of my pure stock plays were blowing away my index investments. Slowly I moved away from the index model.

Today, my own portfolio is a hodge podge of stocks, ETFs and mutual funds. I have a reason for investing in all the stuff I own but I must admit that all the reasons are not good ones. There are a number of investments I hold that I wish I had never encountered. But even carrying those dogs, my portfolio is in the lead against some index-based benchmark portfolios.

If you are asking, what is your portfolio leading? The answer is the test or research portfolios I have have set up using software available to the users of WebBroker. I moved some of these practice portfolios to the trash at the start of the year because they were performing so poorly. If I had a portfolio in real life that was delivering so little, I would liquidate it and move on.

Based on last year's performance, I created two new portfolios reflecting my current feelings when it comes to portfolios that operate in automatic mode. One is based on a balanced portfolio created with TD e-funds and recommended by a financial expert with a very popular blog. The other contains just four holdings, two mutual funds and two ETFs. For a more detailed rundown on these two approaches to investing click the following link: Running a portfolio in auto mode.

Here is the surprise: the mutual fund anchored portfolio is ahead of the balanced ETF portfolio by thousands of dollars. Of course, this may change. No argument there. But it does give me pause.

One final note: I tried simplify this a bit even more and launched one more test fund. This on based on one and only one ETF, porfolio in itself, a fund of funds. When my first fund of funds came in last, I tried another. It, too, brought up the rear.


Sunday, January 1, 2017

Running a portfolio in auto mode

Last January I built ten portfolios following the index investing advice I found on the Net. The winner was not one of the ten but was actually my own ragtag portfolio. My personal retirement portfolio produced about 19.65% in 2016. It won by a wide margin. The handsome dividend income will cover my 2017 withdrawals which I must make in order to live in retirement. My profits from buying and selling Norbord stock were icing on the financial cake.

Still, I keep thinking that as I get older I might prefer a simpler solution. My mess of bank and insurance stocks, REITs and ETFs based on REITs plus much, much more may have done well but it wasn't an elegant solution to investing in retirement. And the small amount of bonds in my portfolio almost guarantees lots of volatility. Do I want to be riding  financial roller coaster in retirement?

I'm tossing the worse performing test portfolios, they soon will be history, and I'm adding two new portfolios today. One is based on a balanced portfolio posted on the Couch Potato Site. It is a balanced approach composed of three Vanguard ETFs:

  • 40% VAB (a Canadian bond index ETF)
  • 20% VCN (a Canadian all cap index ETF)
  • 40% VXC (an all-world ex-Canada index ETF)

The other new portfolio is a mix of two monthly income mutual funds and two income producing ETFs:

  • 55% TDB3085 D-Series fund
  • 20% TDB3086 D-Series US fund
  • 12.5% ZRE (Bank of Montreal ETF)
  • 12.5% XUT (iShares utilities ETF)

I remove about 3.5% annually from my retirement portfolio to cover my living expenses. Neither of these two portfolios provide enough dividend income to cover this expense. They both have yields in the 2% range. If I actually had such a portfolio, I'd been selling a small number of shares and/or units each January.

How did you fare last year? It was a fine year to be in the market for most Canadians. Unless you picked some real dogs, always possible, you are smiling as we enter 2017.

With the arrival of 2017, I'm building up my cash reserves. I fear Donald Trump plus the markets are at all-time highs. I believe the markets are ripe for a correction. I want to be ready to buy. I want some cash to move from the sidelines back into the game.

And I'm still examining my practice portfolios. I'm still looking for clues on how to build the best passive portfolio for me in retirement. I have an idea or two and in the coming days I will post a portfolio or two based on these thoughts.

If my heart doesn't take me out of the game in 2017, I may be ready to fold my investments-in-retirement ideas into my actual portfolio by this time next year.