The Great Pension Experiment Part III: One Year Review

This is part 3 of a 3 part series I have entitled "The Great Pension Experiment", which details my analysis on what to do with a defined benefit pension plan payout. The first two parts may be found here: Part I, Part II.

It has been one year since I started off on The Great Pension Experiment. I feel that this is a useful experiment because it leverages real world results in a closed environment. Because the funds are in a LIRA, I am unable to add or withdrawal funds, so any losses must be recouped “internally” by better investments.

In Part II I made the claim that, based on the Assertive Couch Potato Portfolio, over a 25 year time horizon I would be able to grow the portfolio to a point where I would be able to generate over $600/month in passive income, assuming a 4.00% yield. It has been 12 months since that claim, so lets see how we’ve done after one year.

When the portfolio was first opened, I set it up with a blend of 25% fixed income, 25% Canadian Equities, and 50% of non-Canadian Equities:

Ticker Num Shares Weight
Cash $22.50 cash 0.035%
VCN.TO 600 25.204%
VXC.TO 1065 49.741%
VAB.TO 633 25.020%

Originally I had intended on re-balancing the portfolio semi-annually (i.e. every six months), and in retrospect, this was a stupid idea. Cash was building up in the portfolio slowly, but sitting there idle until I had a chance to re-balance. Due to the already high number of shares, any dividends and/or distributions from the holdings would be in excess of the current price of those shares. Because of this, I should have been using synthetic drips right from the start! Accordingly, in September 2016 I set up my brokerage to re-invest any dividends received directly into additional shares. This ensures that money is not sitting idle, and because the investments are via synthetic drip, I receive additional shares commission free.

That said, as of October 2016 (one year), the portfolio sits at:

Ticker Num Shares Weight
Cash $106.88 cash 0.156%
VCN.TO 603 26.351%
VXC.TO 1109 49.224%
VAB.TO 634 24.270%

For the year ending October 31, 2016, I received $1,485.24 in dividends/distributions ($123.77/month). The portfolio as a whole has grown from an initial investment of $64,723.32 in cash to $68,468.29, which represents a 5.648% total return. This is actually pretty impressive, since the first half of the fiscal year (From November 2015-April 2016), the portfolio was in negative territory:

Period Ending Open NAV Close NAV Return % TTM Return %
2015-11-30 $64,723.32 $64,489.47 (0.361%) (0.361%)
2015-12-31 $64,489.47 $64,460.13 (0.045%) (0.407%)
2016-01-31 $64,460.13 $63,015.30 (2.241%) (2.639%)
2016-02-29 $63,015.30 $61,782.64 (1.956%) (4.543%)
2016-03-31 $61,782.64 $63,695.25 3.096% (1.588%)
2016-04-30 $63,695.25 $63,523.47 (0.270%) (1.854%)
2016-05-31 $63,523.47 $65,380.00 2.923% 1.015%
2016-06-30 $65,380.00 $65,168.21 (0.324%) 0.687%
2016-07-31 $65,168.21 $67,560.62 3.671% 4.384%
2016-08-31 $67,560.62 $67,887.23 0.483% 4.888%
2016-09-30 $67,887.23 $68,275.76 0.572% 5.489%
2016-10-31 $68,275.76 $68,468.29 0.151% 5.648%

I had bought into the portfolio at a peak in 2015, and the market had a clawback shortly after. As a result, the portfolio lost money for the first six months. I did take the opportunity during that period to top off the VXC shares whilst I had some excess cash from distributions, which in retrospect was a wise choice. Buying when the market is in a downturn helps to dollar cost average down, ultimately increasing future returns.

The portfolio is more or less at the target weighting if you round to the nearest whole number, and because of this I see no need to buy or sell additional shares at this time. Hypothetically, if the portfolio were to keep this pace for another 24 years, even at a 5.000% return we would generate approximately $736/month in passive income. So based on simple extrapolation (i.e. assuming constant returns for the next 24 years), we are right on track.

That said, I am going to ignore the portfolio for another six months, and will revisit in May of 2017 to see if any rebalancing is required. Until then, the next update will not be until December 2017. Here’s hoping that the portfolio continues to provide excellent returns at that time.

Onwards and upwards!

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