Initial Value $50,000.00
October 25, 2017
Update Value $48,745.94
October 29, 2018
By Gordon Pape
Everyone wants to be in the stock market when share prices are booming. But when things get rough, as they are right now, investors become much more concerned with safety. Fear overtakes greed.
We had two model portfolios that were designed for people who want to reduce their risk in the event the stock market nosedives. The Defensive Portfolio was launched in March 2008 when the TSX was nearing its all-time record high. As of the last review in March 2017, it was showing an average annual compound rate of return of 8.3%, comfortably ahead of its target. This was despite the fact that just over 30% of its assets were invested in bonds.
In September 2011 I created a Conservative Portfolio for investors who were willing to accept reduced returns in exchange for lower risk. The goal was to preserve capital while earning a target return of two percentage points more than the yield on a five-year GIC from the major banks. It was last updated in April 2017 at which time it had an average annual compound rate of return of 7.8%, with a bond weighting of 55%.
Both these portfolios had roughly the same objective – to outperform GICs without burdening the investor with aggressive risk. Both succeeded.
However, some readers have expressed the view that we have too many portfolios. Upon review, I felt it would be best to combine these two, especially since both hold many of the same securities. So, I created a Low-Risk Portfolio last year at this time. The goal is to minimize any stock market losses while providing a return that is at least a point and a half better than the top GIC rate. Right now that is 3.75% at FirstOntario Credit Union so our current target is 5.625%.
The GIC won the first round as the portfolio incurred a small loss of 0.8% during the latest period. Our bond ETF and preferred share holdings held their ground (including distributions) and Apple performed well. But we were hit by unexpected declines in the shares of Royal Bank and Sun Life, which were primarily responsible for the loss.
In the year since the portfolio was launched, we are down 2.5%. The S&P/TSX Composite is down 5.9% over the same period so we’re better on that score. But we’re well short of achieving our target goal, which is a point and a half better than the best five-year GIC rate.
The asset mix is quite conservative. Just over 58% of the portfolio is invested in bonds, preferred shares, and cash. Another 24% is in banks and insurance companies, which should rally as rates move higher.
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