I’ve got a dirty little secret. It’s the same dirty secret that many of you out there have. We don’t want to admit to it of course. We’re stoic. Independent. Intrinsically motivated. But that’s a lie and we all know it.
What am I talking about?
Comparing our investment portfolios to others, of course. Well, I also have a thing for chocolate soft serve ice cream at Costco but that’s going to take many years of therapy before I can bring that out into the open. For now though, let’s focus on investment portfolio competitiveness.
There are an unlimited number of investment portfolio allocation combinations to be had. The issue is whether the one you have chosen is achieving optimal performance. If it gives the impression that it doesn’t, it leads most people to flip flop and doubt themselves creating stress and anxiety. They then get into a pattern of selling what they have, buying something else to replace what they sold. This then repeats over and over again, usually leading to underperformance of the portfolio. In many instances, people revert to holding cash or a large portion in cash which then gets eroded by inflation. Erosion through inflation then leads to reduced buying power. That leads to buying less chocolate soft serve ice cream at Costco. Oops, there I go falling off the wagon. Let’s stay focussed here people.
How have I dealt with this very real problem?
I’ve put together 13 various types of investment portfolios that I compare my own to. Like you, I follow various FIRE bloggers and other personal finance bloggers who have garnered a level of credibility over time, sharing versions of an investment portfolio and I’ve included them here. As an example, Portfolio #1 below is from the Investment Series from millennial-revolution.com while Portfolio #13 is something I’ve cobbled together based on information shared on greaterfool.ca.
Most are what you would call balanced and diversified portfolios, or B&Ds for short. A few are not. The reason is that I don’t just want to compare directly to B&Ds but also to others which are in some ways outrageously unbalanced. Over time, I’ve seen my portfolio go from the lowest quartile of performance in 2017 to now sit at the top of the top quartile for several years. To achieve that, I’ve made small, very occasional changes to my B&D portfolio. Financial markets change over time and, as a result, it does require minor changes to the portfolio as well. Again, I want to emphasize that this is very occasional.
So on that note, here are the 13 other investment portfolios that I compare to. Just below is a summary of performance. For the analytical types, a more detailed summary of each of the comparable portfolios is just below that.
A few extra comments. Dividends are deemed included when they are payable, not their ex-dividend date (ex-dividend is when the dividend is declared, not the day it actually gets paid to you in case you’re wondering). As well , while my own B&D portfolio allocation may change occasionally, the other 13 portfolios will remain static throughout (in other words, they are fully passive) and no additional funds are added through the calendar year, nor are dividends paid out reinvested. At the start of every calendar year, I will reset all the comparable portfolios to their original initial allocations. Any additional funds I may add to my own B&D portfolio from an outside source are backed out so that they don’t inflate my overall portfolio performance and everything remains an apples to apples comparison.
As you can see from the Summary Of YTD Performance (YTD is short for Year To Date), all portfolios including my own have a negative return. If I was only looking at my own portfolio in isolation, I’d probably feel cause for concern. When it’s compared to the other 13 comparable portfolios though, it holds the number two position out of 14 as of June 3, 2022. That’s pretty good. Next, look at the Data Related To Comparable Portfolios, specifically the average and mean. The difference between my own portfolio and the average comparable portfolio lags by -3.27% while the mean lags by -3.30%. Overall, I interpret that as my own portfolio significantly outperforming the pack.
So sure, I’m currently sitting negative YTD but outperforming overall. As such, should I be stressed or feel anxious? Or, should I give myself a pat on the back instead?
Based on this intentional comparison of various investment portfolios, do you agree or disagree that this a good way to reduce stress and anxiety when investing your hard earned money? Would this keep you on track towards your investment goals as it does for me?
Even more important, do you have a Costco where you are so I can get a chocolate soft serve ice cream when I’m in the area? Sigh…the struggle is real.
Just came across your site.I find it very interesting. Hard to meet people today who are openly honest about their investments. Keep up the good work and honesty.
Thank you unbalanced. I appreciate your feedback. It really feels good to be able to share what I’ve learned. Quite a bit of what I’ve learned was freely given by others and I enjoy paying it forward.
Nice work on beating your comparison portfolios! When I used to DIY invest, I would compare my portfolio to the annual results that Dan Bortolotti posted on his Canadian Couch Potato blog (he no longer does this).
It was interesting to see the comparison, but it didn’t really change how I felt. I always knew that there were so many factors involved in how a portfolio does, and that a lot of those factors were beyond my control.
It was also just a small, arbitrary snapshot in time—for me, long-term performance is what really matters! So in the end, the comparison served more as entertainment than as anything useful.
I think it’s a fun thing to do and, as long as it doesn’t make an investor constantly second-guess and/or change their investment approach, there’s nothing wrong with doing the comparisons.
I think Dan Bortolotti is still posting those annual results on his site.
https://canadiancouchpotato.com/2022/01/10/couch-potato-portfolio-returns-for-2021/
I don’t disagree that people will compare their results for a variety of reasons. Entertainment is certainly a valid reason. I also agree long term performance is a key factor. It’s just that waiting over a long period of time to figure out whether you’re investment portfolio is performing optimally or not can also be detrimental. Regular check-ins are a good thing. How often I guess is up to each person to determine. In my case, the spreadsheet I use is almost completely automated (googlefinance formulas are great) so the time cost for me is negligible.
Also, since I’m posting my portfolio results for transparency, I’m looking to build credibility. Can a layperson with a B&D investment portfolio consistently outperform professional investment portfolio managers managing B&D portfolios? Who knows but it sounds like a mighty entertaining thing if it could be done and I like that kind of challenge.
As of noon Friday I’m down 7%. *&^#$)
These downturns in the market are always great times for rebalancing or injecting more funds in. When is the best time to do so is up to each of us. You’ve got 30% cash based on the portfolio breakout you had shared earlier. You’re in an enviable situation to take advantage of current circumstances if that’s what you wish to do.
That’s pretty good performance YTD. Would be interesting to track it for a longer time period. Also would be interesting to just compare it with a global equities ETF for say 10-15 year time period.
PS: I came here to say this too – thanks for notifying me that my website comments were not working. I was able to get that fixed thanks to you!
I guess you just volunteered me for a 10-15 year stint. 😂
Yeah, I’m pretty pleased so far ytd with how things are going for my B&D portfolio. I mean, yes, I’m down for the year but it’s still holding up relatively well.
Also, it might be an interesting comparison to compare performance with VEQT or XEQT against my own B&D portfolio. Too bad they haven’t been around very long. I did notice VEQT on Vanguard’s site actually shows annual returns. The returns were not bad at all for 2021 and 2020 although they’re similar to my own when their annual dividends are included. And that’s based on considering a 100% asset allocation solely to VEQT (100% equity portfolio – yikes!). For 2022 though, it’s currently lagging my B&D.
I also went to https://money.tmx.com/en/quote/VEQT to review the dividend for VEQT. As of July 8, 2022, the dividend is currently sitting at 1.638% annually. The dividend on my own B&D portfolio is more than double that.
As I’m retired now, tax efficient income from my portfolio is really important. The more I can get while minimizing risk and selling assets (especially in a downturn) is a non-negotiable element for me. It’s also tough to place these type of all-in-one ETFs into a TFSA/RRSP/non-registered account combo when it comes to tax minimization/optimization strategies. I’ve figured out how to minimize taxes to about 3% annually on around a $100,000 draw from the portfolio.
I appreciate how you made me think about ETFs like VEQT/XEQT. As much as they may look good at first glance, they definitely have their drawbacks. Specifically when it comes to placement within investment vehicles like TFSA/RRSP/non-registered accounts as well as for tax minimization/optimization strategies. Same problem as having a VBAL/XBAL/ZBAL/VGRO/XGRO/ZGRO. You’re at the mercy of the ETF manager.
What this tells me is that for a 2 and a half year period at least, B&D is still the way to go (am I suffering from an echo chamber bias? Lol).
Lastly, I’m happy to help. Just glad you got the comments section fixed up on your blog. 👍