June 2020 UpdatePosted: July 15, 2020
Investing takes patience, vision, and reflection.
Patience, because more often than not, there is no “quick money”. There isn’t a big score to find, so the best way is to invest frequently, steadily, and build up your capital over time.
Vision, because an investor has to have a goal, to know where they are going. My investment goals are not the same as your investment goals – I may have three kids, a dog, and a pool, and only need $2,000 a month to live because my spouse makes more than me and we live in a lost cost of living area. Conversely, I may have no kids, a spouse who makes less than me, prefer to drive high end automobiles, and live in a high cost of living area, so I need $6,000 a month to live. Everybody’s vision of where they need to be is different.
And finally, investing requires reflection. One must always be reviewing the portfolio—but not obsessively—to ensure that they are still on the path they started out on. More important: they must ensure that the path they started out on is still the right path to be on. Life changes, and as such, your vision should change. It is only with reflection—on your investment results, and your investment needs—that you can determine how well, or poorly, you are doing as an investor.
The first two items I have been doing fairly well at. While I have not published a portfolio update in nine months (the last being in my September 2019 update), I have been patiently investing my cash, and my vision has not changed. But what I have failed to do is monitor and reflect on my portfolio. This is even more important now, given the current state of the world, and the economy. But part of publishing a portfolio update is that it forces me to reflect on how the portfolio is doing, and the results of my investment decisions. And that brings us to today…how have things been going?
As to be expected, the first half of 2020 has been abysmal:
The COVID-19 issues in February and March sent the markets into a tailspin, and it has taken me four months to get the total portfolio returns back to a point where I am exceeding my benchmark: June 2020 had a 2.2% return vs. the benchmark 1.5% return. Things look even worse when reviewing the trailing twelve month returns:
The benchmark has been beating me handily, with total fund hovering around a 5.0% loss for the 12 months ending June 2020, vs. the benchmark yielding a 3.0% gain during the same period. The biggest laggard is my tax free account, with the biggest drag being High Liner Foods which is sitting at -47%. High Liner has been having a hard time recovering since they cut their dividend earlier this year.
However, total fund income is only one dimension of measuring performance. First and foremost, I am a dividend investor—nay, a dividend gangster! My focus is on passive income, so regardless of how well I am doing from an overall returns perspective against the benchmark, what I really care about is how well my passive income is doing against the benchmark. Put another way: have my investment decisions for the total fund beat, or been beaten by, the passive returns if I had only invested in the benchmark?
Looking at the trailing twelve months, I have beaten the benchmark, and that is the true measure of success. So for every $100 I would have made in the benchmark, my own portfolio made $117 (+17%), over the past twelve months. Reviewing the past year, every month I have beaten the benchmark on a trailing twelve month basis.
The only other item of reflection is my asset mix:
As of mid-year, I am still overweight in equities, and all other asset classes are well below target. With that in mind, over the next few months my focus will be on investing in Vanguard’s VRE.TO REIT to increase my exposure to that asset class.
- Total fund performance has lagged the benchmark on a trailing twelve month measure
- Over the same period, total fund passive income has exceeded the benchmark by 17%
- The total fund is still underweight in the fixed income and real estate asset classes
Even with the sub-optimal allocation and the current state of the economy, given that passive income is still exceeding the benchmark—even with the dividend cut of High Liner Foods and CAE Inc. (discussed here)—I’d consider the past nine months a success.
Onwards and upwards!