Not doing so well!

• I chose not to re-invest the distributions*
• Profit/loss includes paid out distributions

* Distributions = dividends

Click to enlarge

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This “lazy” method seems to be popular in Canada, and is profiled in many financial magazines almost every year. Truly, it’s the land of the extremes – either full-on penny stock speculation, or boring index fund investing

Here’s a look at how that initial $10,000 is doing now. Note:

• I chose not to re-invest the distributions.
• Profit/loss includes paid out distributions.
• Commissions are excluded because they’d be like $5 for the initial buy-in, doesn’t affect anything.

Click to enlarge

Here’s a visual representation of the same. I assume the “amount invested” is going down because of the inflation.

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time in May 2007.

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Here are the results from investing $10,000 in May 2007 (what turned out to be the top of the March-May rally), including the dividends:

In retrospect, I picked just about the worst time to start the portfolio. However, it’s also the perfect illustration of an average investor who buys the top.

The allocation was off, as well, but similar to what magazine articles recommended at the time.

Very common advice for the long-term investors is to not time the market, instead invest monthly equal amounts and it will average out to something nice in the end. Had you continued to invest monthly as they say you should, you’d be throwing the money into the market and watching it go down, monthly.

A good read for those contemplating investing for the decades.

By investing for the long-term you very well may find yourself in a position today’s seniors are, not through the fault of your own. No one person controls the macro environment and throwing all your savings into the stock market that is at other people’s mercy is foolish.

Long-term horizon shouldn’t be over several years, 2, 3 or 5 years is acceptable. No stock goes up in a straight line, so taking profits (selling) in order to re-buy later for less is prudent.

Investing is by no means a sure-fire way to make money. Educating yourself on how to time your stock purchases is the only way to go, otherwise you will always be buying the top. That’s just how it works.

Please don’t use Warren Buffett as your example. Just don’t. I can – and probably will – write a separate post on why it’s wrong to try and emulate his investing style if you don’t have a billion dollars and lots of friends in the government.

Ok, so the takeaway is this — timing the market is a must, for short- or long-term investing.

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It’s not especially spectacular or particularly bad, but it is much worse than the Canadian, American and EAFE markets did. In addition to the negative performance, had I actually bought these ETF’s, I’d also be hit with a tax bill for the distributions. Here’s more information on this topic.

Overall I’m unhappy with this passive portfolio. If not for these distributions I would give this setup a chance and track it for at least a couple of years longer. However this complete lack of control over the buys and sells of holdings within the ETF – and tax implications of this – makes me want to continue stock picking on my own.

So this is the end of the ETF Portfolio v. 1. I will work out a new passive hypothetical portfolio. This time I’ll make it a benchmark against which I’ll track my own results, as opposed to making random picks across the regions.

Click to enlarge the chart

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time.

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All previous gains have been wiped again, however -0.1% is pretty much even and a heck of a lot better than my Juniors portfolio performance. Performance ending Dec 4 (today) stands at -1.2% however the purpose of this portfolio is not to look at daily performance. I’ll stick with the “lazy” approach with only monthly updates.

Click to enlarge the chart

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time.

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Click to enlarge the chart

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time.

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Last update was up to end of July. Since then all the losses have been completely erased, and overall stands at +2.4%.

My penny stock investments are very disappointing, they didn’t recover along with the rest of the market. I stopped tracking them daily; vacation sure helped with the obsession.

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time.

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All the gains since May has been wiped out and it now stands at -2.54%. This is the second losing month in a row. Please keep in mind this table doesn’t account for the dividends, so actual performance is better. I only track share price.

CHART UPDATED to reflect dividend re-investment. Performance now stands at -1.8%, truly, dividend is a powerful thing.

UPDATED!

Hattip to Four Pillars Mike for showing me GlobeFund for easier dividend tracking.

Click to enlarge

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time.

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June Results

Portfolio shrunk by 0.55% in relation to the previous month, but was still up 3.26% overall.

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time.

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Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time investment to match my current trading account amount.

Results

The table doesn’t show the whole picture as I didn’t calculate the dividends or the expense ratio. Right now I just indicated the dividend (annual, per share) and will calculate final numbers including dividends, less MER at the end of the year.

Click to enlarge

Comments and Opinions

Not bad at all for a hands-off approach. My only complaint with this method would be that any kind of relatively passive investing requires a bull market to do well. The major argument against this is that if you invest for decades, you have nothing to worry about, because over time the market always moves up.

Bill Sharpe’s pioneering theory on the interplay between investment risk and return won him a Nobel Prize. Now he wants to help you use his work to make better financial decisions.

Pro-Index Fund arguments.

Excerpt:

Answer: The only way to be assured of higher expected return is to own the entire market portfolio.
Question: You can easily do that through a simple, cheap index mutual fund. Why doesn’t everyone invest that way?
Answer: Hope springs eternal.

I do believe that I can make money by active trading, but the truth is most people just don’t want to do it. They’re either bored by it OR have genuinely bad instincts. So index fund approach probably is the best choice for an average investor. For now I’ll be in the ranks of the hopeful.

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