How Did Our Investments Perform In 2014? Part Deux

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In my last article, I reviewed how our GICs and Bonds fought against inflation. In this part, I expose how our equity, including ETF, investments fared in 2014.

Equities Are a Synonym for Fear

The first stock I bought, which was for non-investment career-related reasons, dropped 50% in value within the first year. The first mutual fund I bought, which was a “buy most of the TSX composite index” reasonable-fee fund purchased in monthly installments over 2 years also lost more than 25% of its value before I stopped looking at my statements. (Note: I did not sell either of these investments for more than 10 years. The mutual fund went on to earn an average of 7% per year after fees but before inflation during that period. I still hold the shares.)

During this period, my GICs earned anywhere from 7-12% per year before inflation.
So my early investing experiences made me very nervous of the stock market and very biased in favour of fixed income investing.

How did our Buy the Entire Index funds fare?

In one of our DC contribution plans there are only three (plus one) choices for investing: the PH&N Bond Fund, discussed in Part One, a “buy the entire S&P TSX Capped Composite” index fund and a “buy the entire world, 50% in the US” index fund. (The other choice is a balanced fund timed to your expected retirement age which invests in these other three funds.)

In our RRSPs we also hold some XIC, which is another “buy the S&P TSX Capped Composite” index fund.

How did they fare in 2014? Well, according to my rough estimates, the DC pension version of the TSX fund returned about 6.7 to 9.9%. (The annual report says the fund’s rate of return for us was over 10% after all fees, before inflation.) (Note: contributions were not equal each month.)

Our XIC return was about 0.6% after fees and before inflation because almost all was purchased in the last quarter of the year when the TSX began falling. (The return for someone who had invested everything in XIC on January 1 would be quite high, somewhere around 10%+. I didn’t bother to find the exact value since I didn’t invest back then.)

Our DC pension “global- including-50%-US” index fund did quite well. Our personal rate of return was well over 25% after fees and before inflation. This was partly because we added a chunk of units (because of re-balancing) just before it shot up in value. The official reported gain was about 20%. As you could probably expect from the trend I’m reporting here, I had the smallest amount of money invested in this fund.

So those funds added nicely to our long-term savings.

How did our Defensive stocks fare?

We also have a chunk of money, outside of our DC plans, invested in specific stocks, REITs, and income trusts. The actual entities were chosen based primarily on professional advice and from that short list our own superstitious wild-eyed guesses.

Oh joy. Now you want me to check the overall return on those, too, don’t you?

Would you settle for the yield? The weighted yield is 5%. And all of them are in the “green” when we check their prices on December 31 2014 against their prices on December 31 2013.

I’ll have to get back to you if I ever manage to crunch the individual numbers for their rates of return.

I’ve always assumed that they have 0 capital appreciation, only income yields. But I guess they actually have had (unrealized) capital gains as well, judging by the comparison of our portfolio book value vs. market value.

Let’s just say, though, that they provided a 5% return even though it was actually higher.
That’s BEFORE inflation, though, so the real return is lower.

Overall, How Happy Am I with our Return on Investment?

We didn’t lose money even after inflation.

I’m happy!

Why Don’t I Invest It All in the Equity Market

So why don’t I dump the GICs and bonds and invest it all in the market?

Because I don’t need to.

We’re investing our “vacations and new cars” part of our long-term savings in the equity markets, for now.

If it does well, great! Who doesn’t like a nice vacation now and then?

But if it tanks (think Japan) we can manage by only walking the local nature trails and by taking transit. And our secure investments are enough to pay for those ever-increasing-way-over-the-rate-of-inflation transit fares, fortunately.

Our Future Strategy

As we earn and save more money we will put most of it into the market. The base of our pyramid is sound and fixed so we can let the upper levels sway a bit in the tectonic waves. (Don’t think large structures like pyramids sway? Try experiencing an earthquake when on the 52 floor of an office building.)

If we see individual stocks, REITs or income trusts that we like the looks of, we’ll invest a bit in them. We’ll do that because our goal is to live off the income from our investments and leave the capital intact to deal with end-of-life excessive costs. If we don’t see anything income-worthy, we’ll park the money in a “buy the entire market; pay an incredibly low MER” ETF or two.

And if all else fails, we’ll work till we die. It’s not like we’d have any choice!

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Did your investments lose, break even, or make you money in 2014? Does the thought of having “investments” make you laugh? Please share your life with a comment.