Gordon Pape Gordon Pape: My Balanced Portfolio continues to outperform targets, gaining 8% annually
Nobody wants to hear about balanced portfolios these days – at least not the traditional 60/40 split type. Small wonder. The stock markets kept setting new records right up to September. Meantime, bonds were retreating on rising interest rates and cash was paying almost nothing.
At some point, all that will change, however, and a balanced portfolio will look attractive again. Consider how this one has done over the ten years since it was created in September 2011 for my Income Investor newsletter.
The Income Investor Balanced Portfolio offers a conservative mix of stocks, bonds, and cash. It’s a little light on the fixed income/cash side, with 35.9 per cent of the total assets. But that’s reasonably close to the traditional 60/40. This type of portfolio is likely to underperform when stock markets are strong but reduces risk when bear markets emerge.
That’s what we’ve seen here. The portfolio was down about 14 per cent at the time of the March 2020 stock plunge, but that was a much better result that the overall market produced.
One reason for that was that in 2019, I increased the bond weighting to 42.5 per cent from 34.5 per cent. Bonds lost ground when the market fell, but they did much better than stocks.
Since then, the portfolio has rebounded, as we’ll see in a moment.
This portfolio had an initial valuation of $25,027.75. The goal was to achieve a return that at least matched the best available five-year GIC rate plus two percentage points.
That means the target varies with the rise and fall of interest rates. The best five-year rate I can find right now is 2.3 per cent from Oaken Financial, which would make our current target 4.3 per cent. Yes, that’s modest but this is meant to be a low-risk portfolio.
Here’s a summary of the securities we currently hold and how they performed over the period since I last reviewed this portfolio in April. Prices are as of the close of trading on Oct. 8.
Brookfield Renewable Partners . At the time of our last review, I wrote that we were too heavily weighted in this security and sold 50 units. Too bad we didn’t sell more; they’re down $5.74 since as green energy stocks as a group have taken a hit after a strong run-up in 2020. We’re not selling any more, however; this one will come back. We received two quarterly distributions of 30.375 US cents each.