Portfolio Deep Dive: 1 year later

Just over 1 year ago  I did a deep dive into my portfolio.  I looked at things like:

• personal rate of return
• asset allocation
• dividend growth
• account allocation

You can look back at last years deep dive HERE

The key takeaways from last year were:

• My personal yield was low.  1.7% to be exact.  This was due to half my portfolio being invested in NON distribution paying funds, and also being focused more on growth than income.
• Almost ZERO fixed income (2% of entire portfolio).  This didn’t bother me at the time, and still doesn’t as I am still (fairly) young and focused more on total growth instead of income.
• I needed to reduce my Canadian exposure & increase my US/Global exposure.
• Need to start thinking more about optimising my portfolio to make considerations for taxation in the future.  For example, more income in TFSA – less in RRSP.  More to spousal RRSP.

 

Investment Portfolio Growth

I first started tracking my investments closely in January 2015.  At the time, my total portfolio was valued at $160,314.49.  It has now been 57 months since I started tracking my journey….let’s see where are now:

My early retirement portfolio now sits at $347,088.02.  This means in 57 months (4.75 years) my portfolio has grown by $186,773.53 or $39,320.74 per year. To break it down even further, this means my portfolio has been growing on average by $3,276.72 per month.  Obviously these numbers include new capital going into the portfolio as well.  I’ll get into actual total returns later.

A few observations on portfolio’s growth:

 

• I’ve continued injecting new cash (regular bi-weekly automated contributions, and some one off stock purchases), however over the last 18 months the amount of new capital has decreased.  This is due to a few factors, most notably higher expenses (new house, daycare costs).
• Continued bull market run – Stock markets continue to be near all time highs.
• Dripping/Compounding effect has continued to help the old portfolio snowball continue to grow.
• Aside from a few small market blips, my portfolio has mostly gone up each month. In the 57 months since I’ve been tracking my portfolio growth, only 11 times did my portfolio decrease in value from the previous month.  The largest decrease in value was October 2018 (-7.15%), and the largest increase was October 2017 (+10.69).

 

To reiterate, the last time I did a deep dive into my portfolio there were 3 key areas I  wanted to work on.  They were:

1. Try to increase my personal yield, without sacrificing overall gains.
2. Reduce percentage of Canadian equities.  I was way over weighted in Canada(home bias)
3. The biggest take away was that I needed to start thinking more about taxation in retirement, and balancing out my accounts to minimise future tax consequences.  My RRSP had grown quite large, but our TFSA’s weren’t maxed out, and I had just started a spousal account.  To reduce future taxes, I needed to start putting more into my wife’s spousal RRSP, less into my RRSP and more into both of our TFSAs. It’s been a bit over a year since I made those observations.  What have I done to correct them…What do I still need to work on?

1. Personal Yield

When I wrote this last time my personal yield was 1.7%.  This means for every $100 invested I was receiving $1.70 in dividends or distributions per year.  Typically a well balanced portfolio would be around 2-4% depending on multiple factors (risk tolerance, years from retirement, etc).  The main reason my yield was so low was because I had about half of my portfolio invested in 2 funds that didn’t pay any distributions.  I have since moved one of the funds over into my direct investing RRSP account, and into two funds that do pay distributions.  The funds I selected were Ishares XAW and RBC Canadian Equity Income.  Although the year is not over yet, I expect my yield to be somewhere around 2.6%.  This would still be considered on the lower side, but I am happy with the balance of lower yield, but high overall gains.  I also still have about 20% of my total portfolio in a fund that pays zero distributions.

Another reason my yield has gone up slightly this year is due to multiple stocks I own increasing their dividends.  Some notable increases over the last 12 months were:

• Algonquin Power +10%
• Power Corp of Canada +6%
• Western Forest +12%
• Interrent Reit +7.4%
• Intertape Polymer Group +5.35%
• Transcontinental +4.7%

So simply by swapping a couple of funds and letting dividend growth companies do their thing (consistently increase their dividends) I was able to increase my yield by almost a full percent over the last year.  With continued dividend increases, I expect by next year my yield will be over 3%.  Here is a quick chart of total passive income by month and year.  For the most part, things are trending the right way.

Yearly dividend income since I started tracking:

2015: $3341.30

2016: $5015.90

2017: $4650.16

2018: $6731.42

2019: $9133* (on pace for)

2. Reducing Canadian Equity Exposure

Last year when I broke down my portfolio I noticed I had WAY too much invested in Canada.  My Canadian exposure was almost 70% of my total portfolio! The reasons for this were simple:

• I’m Canadian – I invest in what I know
• The funds I owned from my Canadian bank were heavily concentrated in Canadian Funds
• I use my TFSA accounts strictly for Canadian dividend paying stocks

I decided I needed to add more USA & global exposure.  To do this I picked up some more of the Ishares XAW fund (which owns over 8000 stocks from countries all around the world EXCEPT Canada), and I increased contributions into my spousal RRSP which was invested in a 100% US Equity index fund.

Fast forward to today, and my Canadian exposure, although still too high has decreased from 69% to 59%.  The goal is to get this down to closer to 35%.  One main reason my Canadian exposure isn’t dropping as fast as I’d like it to is because each month I am dripping over $300 worth of the Canadian Equity Income fund. Obviously this is a nice problem to have, but I still need to do something to get my Canadian exposure reduced.

3. Account Allocation & Tax Consequences

This was by far the one area I needed to work the most on, and admittedly the one area I had previously paid the last attention to.  I had let my RRSP account for 82% of my total holdings, meaning, if I let this continue I’d be due for a big tax bill when the time comes to withdraw those funds.  It doesn’t make sense to have 1 large RRSP, especially when there are (legal) ways to split it into 2 medium sized RRSPs (Spousal account).  It also doesn’t make sense to have a large RRSP but not max out my TFSA.  After my last deep dive, I started putting less money into my RRSP and increased the amount into my spousal RRSP.  I have also since reduced both again, and started putting more into my TFSA.

Here is how the accounts looked last year vs today:

Ugh, the most important thing I wanted to focus on, and I barely made a dent.  I’ve officially stopped contributing to my own RRSP, but because the account size is such a high percentage, the compounding/dripping is making it hard for my other accounts to catch up.  The one bright spot here is that in just over a year, I’ve managed to grow my wife’s spousal RRSP to 7% of our total portfolio.  Obviously the goal would be at retirement, these two accounts are about equal, so that we can withdraw a smaller amount from each, to reduce taxes.  My TFSA has also gone up by 2%, and I expect by next year it should continue to increase, since all money I WAS putting into my RRSP in the past, is now being split between the TFSA’s and the spousal RRSP.

Final Takeaways

The good:

• I was able to increase my personal yield without hurting overall returns.  My TFSA returns over the last year have been 18.42%, while my RRSP has been 5.63%.
• Even after reducing my contributions quite substantially over the last year, my portfolio is growing at a nice rate.  Again, this is due to a nice run up in stocks, coupled with dividend increases and the power of compounding returns.
• In just 1 year, I’ve managed to reduce my Canadian exposure by over 10%
• Both total portfolio value and dividend income are at all time highs.

The bad:

• My RRSP still accounts for almost 80% of my portfolio.  This needs to come down, and the only way to do that is to start putting more into other accounts.  Unfortunately until the kids are out of daycare, that’s going to be tough.
• Canadian exposure, although reduced is still too high.  First step is swapping some of my Canadian Equity income fund for XAW, and transferring my last non distribution paying fund to my direct invest account, and purchasing more XAW!
• We are still not close to maxing our TFSA’s or RESP accounts.  Higher expenses has really put a strain on the amount we’ve been able to contribute the last year or so.

Well, it’s a a bit of mixed review.  Some things are looking pretty good – while others clearly need a lot of work.  The most important thing is that I keep looking at this, and writing about it, because it puts pressure on me to continue to improve.  Hopefully at this time next year I’ll have a few more wins in the “good” and can eliminate the “bad” stuff.

 

Cheers!