Initial Value $14,984.55
November 11, 2012
Update Value $24,713.41
November 27, 2017
This mini-portfolio was launched in November 2012. It is designed for readers with a limited amount of money who wanted a better return than they could get from a GIC without taking on a lot of risk.
The idea came from two readers who held GICs that were up for renewal. They were unhappy with the rates that were quoted and were looking for other options. This low-risk portfolio was my solution to their dilemma.
However, I stressed at the time, and still do, that there is not a lot of risk here, the portfolio is nowhere near as safe as a GIC. They guarantee both principal and interest (this portfolio does not) and are covered by deposit insurance up to $100,000. If absolute safety is what you want, stick with the GICs and forget about the extra return this portfolio offers.
Right now, you can find a five-year GIC that pays 3.1% at Oaken Financial. But, as I have explained to several inquiring readers, Home Capital owns Oaken. That company has been going through a major financial crisis and has seen its clients withdraw millions of dollars in a classic run-on-the-bank scenario. Even with deposit insurance in place, many people are obviously uncomfortable with Oaken right now and are voting by pulling out their money.
As always, you need to decide how much risk you are prepared to take on to receive a higher return. If the answer is “none”, stick with GICs from the major banks and learn to live with their low rates (1.6% at Royal Bank for five years).
This mini portfolio includes three securities: the common stock of BCE Inc. and Scotiabank, plus the 5.75% convertible debentures from Firm Capital Mortgage Investment Corporation.
The portfolio has a total value of $24,713.41 (market value plus retained income). That’s up from $23,466.29 at the time of the May update for a gain of $1,247.20 in the period. That’s an advance of 5.3% in six months, mainly on the strength of the big move in Scotiabank shares.
Since the portfolio was created, we have a cumulative return of 64.9% in five years. The average annual compound rate of return is 10.5%.
We have now operated this portfolio for five years and the evidence is clear. By assuming only a moderate degree of risk it is possible to generate returns significantly in excess of those offered by any GIC.
I don’t see any point in continue to monitor this portfolio any longer. The results speak for themselves and anyone who wishes to use this investing approach can find many suitable stocks on our list. So with that, we’ll wrap up this portfolio and move on. – G.P.
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