Rate of Return: 6.6%
The strong performance in the stock markets this year has left many investors overexposed to equities. This is of special concern for older investors, whose time horizon may not be long enough to wait out the impact of a deep bear market.
According to IG Wealth Management, the S&P 500 took almost six years to fully recover from the crashes of 2000 (the dot-com bubble) and 2008 (the global financial crisis). The S&P/TSX experienced similar timelines when recovering from those two crashes in the 2000s.
That’s why it’s a good idea to make sure your portfolio balance is in line with your objectives and risk tolerance. The classic mix is 60%/40% between stocks and bonds/cash, but this will vary in individual cases.
The important thing is to ensure you’re on target. Since we’re coming up to year-end, this is a good time to review your portfolio and make adjustments if needed.
As a guide, you can use the Balanced Portfolio that we developed for readers several years ago, in September 2011. It offers a conservative mix of stocks, fixed-income securities, and cash. Normally, this type of portfolio tends to underperform when stock markets are strong but reduces risk when bear markets emerge.
The portfolio had an initial valuation of $25,027.75. The goal was to achieve a return that at least matched the best available five-year GIC rate plus two percentage points.
That means the target varies with the rise and fall of interest rates. The best five-year rate right now is 3.95% from MCAN Wealth, which would make our current target 5.95%. We’re doing better than that.
Comments: The portfolio recorded a decent gain of 6.85% in the latest period. It is now valued at $61,020.04.
The cumulative gain since inception 14 years ago is 143.8%. That works out to an average annual compound growth rate of 6.57%. That’s better than our target.
Changes: Our position in Canadian Apartment REIT is not performing as we expected. It’s a well-managed business and will recover, but I’d like more diversity in this portfolio. Therefore, we will sell our units for a total of $3,788.71 (including retained earnings). We’ll use the money to buy 65 units of the BMO Low Volatility Canadian Equity ETF (TSX: ZLB), for a cost of $3,724.50. We’ll add the remaining $64.21 to cash.
We’ll use some of our retained income as follows:
XHY – We’ll buy 10 units at a cost of $165.40. We now have 460 shares, with retained earnings of $60.50.
XIG – We’ll buy another 15 units for a cost of $298.05. We now own 215 units and have retained earnings of $31.85.well-managed business t
FTS – We’ll add five shares at $72.66 for a total investment of $363.30. We now own 50 shares and have $153.76 remaining in retained earnings.
We have cash and retained earnings of $3,496.34. Steinbach Credit Union is currently running a promotion that pays 4.6% for the first 121 days and 1.5% thereafter so we’ll deposit the money there.
Here is the revised portfolio. I will review it again in six months.