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
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?
We launched a new business this week – a fee-only planning service – and the response so far has been fantastic. Thank you for all of your positive comments and emails, we really appreciate the support. If you’re interested in working with us, please check out our fee-only advice page where you can read more about our background and the service we provide.
Financial Post columnist Melissa Leong was our guest on the Because Money video podcast Wednesday night. We talked to Melissa about her recent wedding, why the average wedding today costs upwards of $23,000, and how to save money on your special day while still getting the experience you want.
How will Canada’s housing market look 10 years from now? Rob Carrick explains what might happen if housing prices keep rising at recent levels. Hint: It didn’t go over well with certain readers:
Today’s column on housing just described in a reader e-mail as “scaremongering at its finest.” Finest? Am so proud. http://t.co/vYyPi67RJX
— Rob Carrick (@rcarrick) January 9, 2014
Dan Bortolotti revealed the 2013 performance figures for the model portfolios on his Canadian Couch Potato blog. The two Global Couch Potato portfolios led the way with a 15.5% return last year.
Today’s Economy blogger Kevin Press lists 20 smart money moves to make in 2014. One tip that caught me by surprise was the suggestion to take the Canadian Securities Course. He says, “this course is an investor’s best friend. The textbook itself is worth the price of registration.”
DIY investor Barry Choi guest posted on Canajun Finances and explained how he got the deferred sales charges waived on his mutual funds. The story is worth a read.
Krystal Yee explained why she reduced her mortgage payments to free up more cash to invest in her RRSP. This quote summed up her decision, “If (early retirement) is the most important financial goal for me at the moment, why wasn’t my budget reflecting my priorities?”
An article in the Financial Post suggested we could retire much earlier if only we didn’t spend so much time in school. The author says by the time you earn a degree, and pay it off, you might be 32 years old before you start making money.
No surprise, the head of a national student association fired back, saying that post-secondary education is actually a great retirement investment. He argues that the increased earning potential of a post-secondary degree would far outweigh any negative effects of getting a later start to your career.
A controversial article in Slate explained why dividends are evil, saying they’re bad for the economy, bad for business, and surprisingly unfavourable to investors. Instead, the author argues, companies should use their extra cash to either buy back shares or invest back in their business.
Financial Uproar held a stock picking contest last year. I did not win (again). My four picks netted a 37.5% gain, which beat the S&P 500 but was only good enough for third place.
Final thoughts
I’ll be back Monday to post the 2013 performance of my dividend stock portfolio and compare it with a couple of benchmarks.
Have a great weekend!
Your New Year’s Resolution
Resolve to renew all your old resolves,
And add a few that are new.
Resolve to keep them as long as you can.
What more can a poor man do?
– Early 20th century postcard
The last day of the year is often a time for looking back to the past and reflecting on the changes we want to make in the coming year.
Unfortunately, all those good intentions have evaporated by the middle of January and people have the “what’s the use?” feeling. Only 40 percent will actually achieve what they set out to do, and I’ve seen that rate as low as 8 percent.
Related: Why you should take a day off to work on your finances
Resolutions seem to be very similar from year-to-year.
My solution? Don’t try to start on the first day of the New Year when you’re cranky, sleep deprived and possibly hung over. This is a recipe for failure. Instead, turn your resolutions into small, manageable goals you can achieve throughout the year, and fit them in to your financial plan.
Top ten resolutions
1. Exercise. Sadly, most people join a gym, get the free Spandex shorts – and then never go back. If you want to fit more exercise into your life wait until the most crowded six weeks is over. Don’t have unrealistic expectations. You’ve just spent the last two months packing in excess food that is now affixed to your backside. Think about the journey, not the outcome. You want to feel healthier, not participate in Mr/Ms Universe. Try to meet new people who share your goals and you can urge each other on.
2. Lose weight. Let’s face it, we’re aging as a population, and with age comes middle-age spread. Weight loss is the most popular resolution, but instead of resolving to lose 20 (or 50) pounds, resolve to eat better instead. People who eat a healthy diet spend less on food compared to those who don’t. Not only will you feel better, the potential savings can top up your investment account, or you can make a donation to the local food bank. Charitable donations can be claimed as a non-refundable tax credit, which can reduce taxes owing. Helping others can be financially rewarding.
3. Quit smoking. Everyone knows how bad this is for both your physical and financial health. It’s hard to do because of its addictive nature. However, the availability of proven quit smoking aids – such as gum, patch, prescription medication, – now makes it easier. On average it takes smokers about four tries before they quit for good. Once successful, the savings could be invested to earn a return of 18% if used to pay down a credit card.
4. Reduce alcohol consumption. I’m not saying quit drinking altogether (although you may resolve this on New Year’s Day). Just spend $25 less a week on alcohol and invest it in your TFSA. A savings of $1300 annually invested at 5% would grow to $62,000 in 25 years.
5. Stop excessive shopping. According to walletpop.ca Canadians spend almost $4000 a year on things they don’t need. If you reduce your excessive shopping by 50% you can use the extra money to pay down your debt instead of increasing it.
6. Learn something new. Take a course or read a book. A hobby or sideline can bring in part-time income. Learn some basic home repairs to save the cost of a professional. Learn about investing and money management.
If you have a knack for economics and investing, then you should seriously consider pursuing an MA ECON – economics degree online. Even if you already have a busy career, you can balance classes and studying however you want. Just about any topic covered in an economics class can prove to be an immense help with your current finances. It only takes a few minutes to go online and request more information about an economics program, and it could change your life for the better.
Improve your employment skills. If tuition is $500 and you get a raise of $50 a week, your net return is 9%. Also, certain tuition expenses can be claimed as a non-refundable tax credit.
7. Help others. Volunteer for organizations that have special meaning for you. You’ll not only be helping others, but learning valuable skills and meeting like-minded people. Donate all those household items you no longer need.
8. Get organized. This is on just about everyone’s resolution list. Reduce the clutter and find peace of mind in your home – and you’ll be able to invite someone over. Organize your office and finally find that stapler when you need it. Put together all the documents you need to file your income tax return. The earlier you file, the sooner you’ll receive your potential tax refund and the sooner you can pay your holiday credit card debts.
9. Start a savings plan. Rather than saying you’ll save $5000 this year, resolve to put away $100 a week (and immediately set up an automatic transfer).
10. Pay down your debts. Enough has been said about this topic.
Final Thoughts
Get an app. There’s a mobile app that can help every resolution. They can track your progress and coach you through the process. If you have a competitive nature, find an app that is shared by others – your new buddies.
Reassess – if it’s not working go back and modify. If you can’t save $100 a week, knock it down to $50 and keep trying. You may slip up once or twice. That’s OK – you’re only human.
Don’t give up too easily. Forgive yourself, move on and keep trying.