My DIY investing journey began after the global financial crisis in 2008-09. It wasn’t until markets crashed by as much as 50 percent that I started to take notice of my investment statements and performance. Aside from the significant decline in my portfolio, the most alarming number was the 2.7% MER being paid on a global equity mutual fund.
Enough was enough and so in mid-2009 I opened a discount brokerage account at TD, transferred my portfolio there, and bought individual stocks with a focus on dividend growth.
The timing couldn’t have been better: dividend stocks were out of favour and trading at extremely discounted valuations. In just five-and-a-half months my new strategy paid off handsomely – returning over 35 percent over the remainder of 2009.
I suspect that most DIY investors have similar stories – underperformance and high fees caused many to dump their advisors, sell their mutual funds, and strike out on their own.
Related: 5 challenges that DIY investors face
And if the initial results were anything like mine, what followed was a lot of self-congratulating and back patting. DIYs like me were brimming with overconfidence. But what was lost on me at the time was the old John F. Kennedy aphorism, “a rising tide lifts all boats.”
Indeed, anyone who stayed invested after the great crash of 2008 was amply rewarded by the five-year bull market run that followed. DIY investors like me falsely took credit – attributing the success to their ability to pick winning stocks – instead of recognizing that we were all benefiting from a rising stock market and that our fortunate timing could be explained as simple luck.
Dividend stocks have outperformed the broader market for a few years, but the tide is starting to turn. Value stocks are harder to come by today and I don’t have the patience to wait on the sidelines until they become more attractive, nor do I have the ability to unearth the hidden gems that are often overlooked by analysts and institutional investors.
Related: How behavioural biases kept me from becoming an indexer
I diligently track the rate of return on my investments and compare the results against two appropriate benchmarks. All active investors should do the same; otherwise it’s impossible to tell if your strategy is working.
Outside of that glorious run in 2009 my portfolio has barely topped its benchmarks of CDZ (the iShares dividend aristocrats ETF) and XIU (the iShares S&P/TSX 60 index fund). This year my portfolio badly under-performed those funds – by 4.38% and 3.50% respectively.
2014 Portfolio rate of return
| Month-end | Return (%) | Value ($) | New cash |
| Dec 2013 | — | $83,086.47 | — |
| Jan 2014 | -0.45% | $82,711.71 | — |
| Feb 2014 | 2.84% | $85,064.30 | — |
| Mar 2014 | 2.11% | $95,521.18 | $8,507.45 |
| Apr 2014 | 1.69% | $97,135.12 | — |
| May 2014 | -0.12% | $97,023.22 | — |
| Jun 2014 | 2.48% | $99,427.12 | — |
| Jul 2014 | 0.81% | $100,230.00 | — |
| Aug 2014 | 2.22% | $102,456.10 | — |
| Sep 2014 | -2.96% | $99,426.63 | — |
| Oct 2014 | -0.02% | $99,409.50 | — |
| Nov 2014 | 1.30% | $100,699.26 | — |
| Dec 2014 | -1.52% | $100,646.89 | $1,500.00 |
| YTD return % | 8.53% |
Performance versus benchmark
| My portfolio | CDZ | XIU | |
| 1 year (2014) | 8.53% | 12.91% | 12.03% |
| 3 years | 11.48% | 11.81% | 10.96% |
| 5 years | 11.69% | 11.37% | 7.10% |
| Since Aug 2009 | 14.79% | 13.41% | 7.88% |
Okay, this year aside it hasn’t been all that bad. But lately I haven’t felt that the time and effort spent managing my portfolio has been worthwhile. My last few stock picks were flat-out terrible (Rogers Sugar, Canadian Oil Sands) and I drifted away from the core ideas behind dividend growth investing, which is to buy blue-chip stocks when they are value-priced and hold them for the rising dividends.
Related: How to get started with dividend investing
That’s not to say that I lost faith in the dividend growth strategy – but you need extreme discipline and dedication to stick with this approach for the long term. That means keeping new cash and dividends on the sidelines – often for years – until better stock prices come along.
I no longer wanted to worry about market timing, analyst reports, and researching ideas for new companies in which to invest. I wanted a simple strategy that required minimal maintenance while still giving me the opportunity to reach my investing goals.
That strategy, as you now know, is an easy two-fund solution built with Vanguard’s All World ex-Canada ETF (VXC) and its Canada All Cap Index ETF (VCN). That’s it.
Here’s been the best part:
So far the best thing about switching from 24 dividend stocks to 2 ETFs has been unsubscribing from 24 company email alerts.
— Boomer and Echo (@BoomerandEcho) January 9, 2015
You can track your rate of return using these handy calculators developed by PWL Capital’s Justin Bender. Thanks to Justin for helping me put together the past returns for my portfolio and its benchmarks again this year.
How did your investments perform last year?
