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Investment Ideas This veteran investor is comfortable with stock market fluctuations

Ram Balakrishnan

Occupation

Software engineer

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The portfolio

Exchange-traded funds (ETFs), real estate investment trusts (REITs) and cash.

The investor

Ram Balakrishnan is the author of the Canadian Capitalist blog. Once a popular source of financial commentary, no posts have appeared in more than a year. Higher priorities now for Mr. Balakrishnan are work demands and health issues.

How he invests

Nonetheless, his portfolio is doing just fine, earning returns comparable to the stock market without a great deal of time and effort on his part. The decision made several years ago to adopt the "lazy portfolio" approach effectively put his investments on autopilot.

His portfolio is "pretty much" the same as the Sleepy Portfolio introduced on his blog. One difference is there is no allocation to bonds in his personal portfolio. That's because Mr. Balakrishnan doesn't feel the need to smooth equity volatility, having become comfortable with stock-market fluctuations as a result of several years of investing.

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The asset classes (and their target asset allocations) are: Canadian equities (26 per cent), U.S. equities (28 per cent), European/Asian equities (28 per cent), emerging markets (6 per cent), REITs (6 per cent) and cash (6 per cent).

They are represented mostly by ETFs. There is the iShares S&P TSX Capped Composite ETF (XIC) for Canadian equities, Vanguard Total Stock Market ETF (VTI) for U.S. equities, Vanguard FTSE Developed Markets ETF (VEA) for European/Asian equities and Vanguard Emerging Markets Stock Index ETF (VWO) for emerging markets.

Vanguard ETFs are favoured since their annual fees are among the lowest of ETFs. He doesn't hold a Vanguard ETF for Canadian equities because the iShares ETF he holds now for this asset class would have to first be sold and that would incur a large capital-gains tax since it is held in a non-registered account.

The REIT asset class was once represented by an ETF, but it was replaced by the RioCan (REI.UN), H&R (HR.UN) and Canadian Apartment Properties (CAR.UN) REITs. These three REITs are a good proxy for the ETF and are used instead to avoid the high annual fee charged by the ETF.

About the only thing that needs to be done is to rebalance so holdings do not grow to overshadow the others and alter risk levels. Mr. Balakrishnan does this when contributions are made, putting new money into asset classes that are lagging their target allocation. A spreadsheet was created to automatically monitor how far the asset classes have drifted from their targets on a total return basis (capital gains, income, currency changes etc.).

Best move

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Switching to an ETF index portfolio.

Worst move

Losses on labour-sponsored venture-capital funds he once owned.

Advice

The simplicity of ETF portfolios may hold some appeal for investors without the time or capacity for an active investing approach, he suggests.

Want to be in Me and My Money? Contact Larry MacDonald at mccolumn@yahoo.com or his website

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