Last year, with the help of Justin Bender from PWL Capital, I went back and calculated the rate of return from my portfolio of dividend stocks since I started buying shares in 2009.  Why?  Because it’s important to calculate and compare your portfolio returns to an appropriate benchmark so you can figure out whether active management is really adding value over a passive investing strategy.

Related: How to get started with dividend investing

If it’s not, then you should consider passive management, which is to simply buy low-cost index funds and ETFs and hold them for the long term, rebalancing your allocation when appropriate.

“Too many investors believe they are beating the market, but you need to back it up with facts before you have any bragging rights whatsoever,” said Bender.

My portfolio rate of return

So I’ve been diligently tracking my portfolio rate of return using this method described on Justin’s blog.  Since my portfolio consists of Canadian dividend stocks and REITs, the benchmark I compare it to is the iShares Canadian Dividend Aristocrats Index Fund (CDZ).  I also want to compare my portfolio to the overall Canadian market, which is best represented by iShares S&P/TSX 60 Index Fund (XIU).

Here are the results:

1-Year (2013) 3-Year (Annualized) Since 08/2009 (Annualized)
Robb Engen Portfolio 13.62% 11.92% 16.25%
CDZ 13.49% 9.59% 13.25%
XIU 13.03% 3.41% 6.96%

Sources: BlackRock Canada, Robb Engen, Dimensional Returns

Canadian stocks did not perform as well as U.S. and International stocks last year, but they still had a great year – returning 13 percent.  My portfolio barely eclipsed both index funds in 2013, but the results look much better over the last three-to-five years.  It’s beating the CDZ benchmark by a full 3 percent and trouncing the XIU benchmark by nearly 10 percent.

Related: Why I Became A DIY Investor

The following graph shows how much $1 invested in my portfolio would have grown to, compared to $1 invested in iShares CDZ and iShares XIU:

Growth of $1: August 2009 to December 2013

Growth of $1 Graph

Sources: BlackRock Canada, Robb Engen

Final thoughts

The results are impressive, but the question is – how much of the performance is due to superior skill and how much is just being in the right place at the right time?  Only long-term results can answer that question.

Related: Score One For Active Management? Check Out These Market Beating Funds

How did your investments perform last year?  Do you track your portfolio rate of return?

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25 Comments

  1. Grant on January 13, 2014 at 7:35 am

    Well done Rob, I’m impressed. And, I agree CDZ is a good benchmark to use as well as XIU as that is what passive indexing investors would have used for the Canadian market. Mind you, just over 4 years is a fairly short time frame – let’s see after 20 years!

    • Echo on January 13, 2014 at 7:52 am

      @Grant – Thanks! I agree, it’s a short time frame, but that’s what I’m working with so all I can do is keep tracking the results and holding myself accountable.

  2. Michael James on January 13, 2014 at 9:17 am

    I think more bloggers (and others as well) should follow your lead and compare their personal portfolio results to indexes. I’m a little puzzled, though. You said you invest in Canadian dividend stocks and REITs. Shouldn’t your benchmark be a blend of stock index and REIT index returns?

    • Echo on January 13, 2014 at 9:41 am

      @Michael James – I should have said REIT, as I only have one in my portfolio – RioCan. I think CDZ is still the most accurate benchmark for my portfolio without getting too complicated.

      Agree on the accountability, I’d like to see more as well.

      • Michael James on January 13, 2014 at 10:02 am

        RioCan has beaten CDZ by about 3%/year and beaten XIU by about 8%/year since Aug. 2009. Depending on how much RioCan you’ve owned, it could make a big difference in a fair comparison.

        • Echo on January 13, 2014 at 11:07 pm

          I held 130 shares of RioCan from Aug ’09 until last month when I bought another 100 shares. Looks like it has always made up between 5-7% of my portfolio.

          • Michael James on January 14, 2014 at 7:08 am

            That’s a fairly small percentage. Your blended benchmark would be somewhere close to 13.5%, which you beat comfortably at 16.25%. Life is looking good if you can keep up the outperformance.



  3. marci on January 13, 2014 at 9:37 am

    What dividend stocks do you invest in?

  4. Grant on January 13, 2014 at 9:40 am

    Good point – I missed that. At least the more appropriate blended index would make your 2013 results better!

  5. Bernie on January 13, 2014 at 11:49 am

    I’ve been a proponent of DGI since I went DIY with a discount broker in 2008. It’s more hands on and requires due diligence to pick & monitor stocks but I’m happy and wouldn’t have it any other way. I don’t find it difficult to beat market indexes. An index is a watered down average of a long lists of stocks half of which underperform. The long term achievers of these lists tend to stay in the top half of the index so why not stick with them rather than the whole list!

    I currently hold about 60% Cdn & 30% US stocks in my RRSP. My 5 year annualized return is 16.43%. I hold 4 Cdn stocks and one mutual fund in my non-registered account. In this account my 5 year annualized return is 23.70%.

    I fully realize we’ve been in a bull market where a rising tide raises all boats. The bull run is getting a little long in the tooth so with this in mind I’ve been tinkering with my selections. I’m going with lower beta stocks that would have faired well in the past recession. I’m also increasing my US content with more long term dividend achievers.

  6. Money Saving on January 14, 2014 at 2:04 pm

    Well done – I think another thing to point out is that the combined risk of your portfolio relative to the indexes most certainly has less risk (because of its diversification). So, you achieved a higher return with a lower risk – very well done!!

  7. Grant on January 14, 2014 at 3:39 pm

    @Money Saving: Not so. The portfolio of 15 stocks is much less diversified than the two indexes. It therefore has higher risk, and over this time period had a higher return.

    • Echo on January 14, 2014 at 9:27 pm

      Surprisingly, even though my portfolio achieved higher returns than CDZ and XIU, it did so with lower volatility.

      Standard deviation since Aug ’09:

      My portfolio – 7.41%
      CDZ – 8.53%
      XIU – 10.95%

      • Don on January 16, 2014 at 8:37 pm

        It’s not actually surprising. People over-estimate how many stocks they need to buy to diversify. Buying too many stocks is often worse, and often known as “dewosification”.

        You really only need 12-15 stocks to track the general market within 2-3%.

  8. Stephen @ HowToSaveMoney.ca on January 14, 2014 at 5:42 pm

    That are some pretty impressive returns. I’ve made rough calculations of my portfolio performance annualized using Excel since about 2008. I’m sure I haven’t done the calculation perfectly, but I know my performance is WAY worse than.

    Part of the problem is I invested in some individual stocks that tanked and I’m primarily invested in index funds outside of that. Can’t beat the index when you invest in the index…

    The only real winner of an individual stock I’ve had is MSFT but it doesn’t represent a large part of my portfolio.

    So far investing in individual stocks has been very dangerous for me, but that’s because I don’t spend enough time understanding company financials to make wise investing decisions.

  9. Michael on January 14, 2014 at 9:52 pm

    @Money saving an index is much more diversified (and therefore lower risk) than picking 15 individual stocks. Risk is related to return – with higher risk comes the opportunity for a higher return. With that being said, picking blue chip dividend paying companies as Echo has done is a good strategy to beat the index. Nice work!

    • Echo on January 14, 2014 at 10:08 pm

      There are a few different types of risk to consider. Apparently my portfolio of around 20 stocks or so was less volatile (lower standard deviation) than each of the benchmarks over this specific period of time. But my portfolio likely had much greater single-security risk.

      For example, my top holding represents 7.5 percent of my total portfolio, compared to the top holding of CDZ, which makes up about 4 percent.

      RBC represents just over 8 percent of XIU’s holdings, however there are 30 other individual companies that each make up less than 1 percent of the index.

  10. Eureka Investor Guidance on January 15, 2014 at 12:07 pm

    I’m curious why you chose to compare your portfolio to the ETFs instead of the indices themselves?

    CDZ is off its index by over 3.5% in the last 5 years.
    XIU is off by its MER (0.30%) so that not a big deal but if you want an accurate portrayal of performance…

    Also, the ‘composite’ has outperformed the ’60’ by over 1% in the past 5 years.

    I think you should also have included a “blended” i.e. weighted benchmark to compare your performance against. How you would distinguish that weighting I am not sure as the dividend index holds some of the ’60’ and vice versa. For long term tracking you could pick one or continue to compare to both which would provide you a range to sit in or outperform.

    • Echo on January 15, 2014 at 12:34 pm

      @Kathy – I chose the ETFs because it’s not possible to purchase the index itself. The point of the exercise is to see whether I’m better off owning CDZ instead of building a dividend growth portfolio on my own.

      Good point about including the composite index, I’ll look at that next year.

      • Eureka Investor Guidance on January 15, 2014 at 1:35 pm

        You could replicate the index with individual positions, not ETFs. Granted it’s not easy.

        If you are comparing your active portfolio to a passive portfolio you might switch to (I.e. CDZ XIU combo) on a pure return basis your way makes sense.

        BUT shouldn’t you include other factors if you are comparing whether you should go passive or stay active?

        Most significant your time to actively manage your portfolio (although do not forget trading costs). Research and rebalancing can take up a substantial amount of time.

        How much time do you think you have spent researching your positions? Do you think the time spent is worth the extra return you have received by actively managing your portfolio?

        In 2013 maybe not? Long-term yes?

        • Echo on January 15, 2014 at 3:51 pm

          @Kathy – I think I’ve spent more time explaining the benchmarks than I’ve spent actively managing my portfolio 🙂

          The key difference between my portfolio and CDZ is how the dividend growth strategy is implemented. CDZ makes all of its “decisions” according to a bunch of pre-determined rules — there is no manager judgement involved.

          I use similar criteria (dividend growth), but I use my own judgement in picking stocks.

          By comparing my picks to the ETF, I’m basically measuring the quality of that judgement. Does it add or subtract value? Would I have been better off simply using the index to make all the decisions for me?

          No benchmark is ever perfect, but it’s probably good enough for my purposes.

  11. Don on January 16, 2014 at 8:45 pm

    You have a good return for the period, especially considering you are investing in Canada, as our market has woefully under-performed the US.

    I also agree with tracking ETFs rather than an index because you are comparing your returns with that of a professional manager.

    I have a feeling this year will be a hard slog for the Canadian market, again. So your dividends should help you out a lot.

  12. Helen_in_Toronto on February 24, 2014 at 2:54 pm

    To Bernie: Would you share what you hold in your non-registered portfolio? What are the significant differences in your portfolio versus the Echo portfolio. We’re all here to leans and share and get smarter. These results are so impressive!!!!

    • Bernie on February 24, 2014 at 4:37 pm

      Helen,

      The four stocks in my non-registered account are:
      AD.TO Alaris Royalty
      CEU.TO Canadian Energy Services
      EIF.TO Exchange Income Services
      GH.TO Gamehost Inc

      I’ve held these 4 between 14-54 months consecutively. I bought them when they were quite cheap and have had really good growth. They provide excellent monthly dividends which I put into a mutual fund, called “Galileo High Income Plus – A. The MER of the mutual fund is high but the returns beat almost all ETFs out there. Annually I sell a portion of the fund to transfer into my TFSA.

      Please keep in mind that I bought these stocks in cheaper times. The stocks have much high valuations now so future returns are likely to be less lofty. For me they’re holds unless there’s dividend cuts. I would really hate to sell though as my capital gains are extremely high! EIF.TO & GH.TO are not what you would call dividend growth stocks but they grow nonetheless and have nice yields. Another thing to note is that I am retired so my goals and objectives may be quite different than your’s.

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