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Time to ask yourself some uncomfortable questions about your portfolio

What a year 2013 was. Everybody's portfolio was up (or almost everybody), and most were up a lot.

It was an unusual year, but not only because of strong returns. For Canadian investors, a barbell shape may best describe the 2013 results. On one end, there's a large group who had balanced portfolios that were fully invested in the market and had a healthy allocation to foreign stocks. They did well – double digit returns for sure.

At the other end, there's a group who pursued less diversified strategies, many of which worked well in previous years, but were less fruitful in 2013. I'm referring to investors who had concerns about the macro-economic picture and kept lots of cash on the sidelines. And investors who, for comfort reasons, owned mostly (or solely) Canadian stocks, for which the results were mixed.

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I can't draw the barbell definitively, but there's no doubt Canadian investors went into 2013 with too much cash and a strong home country bias. Monthly income funds, which are invested in Canadian securities only, are amongst the largest mutual funds in the country, and most portfolios holding individual stocks are heavily tilted towards Canada, with only a sprinkling of U.S.

The reality is, 2013 will be a just blip on your long-term growth chart five to ten years from now. The important question is: How has your portfolio done over the long term?

Normally, five years would be a reasonable period to assess this, but that's not the case today. Money managers will be trotting out some fancy five-year returns when they report to clients over the next few weeks, but unfortunately, these numbers represent only one side of the market cycle. Five-year results no longer include 2008.

To do a 'full cycle' assessment, you'll need to look at how your investments have done over a 7- to 10-year period, or longer. After all, it's the round trip that matters.

It's more difficult to get your hands on longer-term returns, but not impossible. If your investment manager or advisor doesn't show these numbers on their year-end statement, you should ask for a performance analysis. After all, they've been hired to help you achieve your long-term goals, which will involve lots of good and bad years. They must be able to show you how you're doing on that journey.

The most important part of your assessment, however, involves looking in the mirror and doing an honest, perhaps uncomfortable assessment of how you (the client) has done. You should be merciless in peppering yourself with questions.

Have I got an asset mix target and a strategy to implement it? Do I routinely assess my advisor or investment manager on service, fees and performance, and hold her accountable?

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Did uncertainty around U.S. government finances shake me out of the market in 2010, 2011 or 2012? Did I avoid European stocks because of alarming headlines, or buy into the weakness?

After the 2008 crisis, did I max out on my RRSP contribution, or skip it that year? In a search of a quick fix, did I load up on bullion funds, dividends, Kevin O'Leary, covered calls, REITs or guaranteed income funds, or did I carefully assess each of these 'must have' trends to see how it fit into my overall portfolio?

And finally, the hard ones. Which did I spent more time analyzing – my portfolio or my cell phone plan? And if I'm really honest with myself, did my behavior help or hurt returns?

Since 2008, we've had a great ride. Unfortunately, not everyone got on the bus and of those that did, some got off a few stops too early. The last two years have highlighted the need to have a plan, and a strategy for implementing that plan in a disciplined and diversified way.

Tom Bradley is president of Steadyhands Investment Funds Inc.

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About the Author
Tom Bradley

Tom Bradley is the President and founder of Steadyhand Investment Funds. His education includes a Bachelor of Commerce degree from the University of Manitoba (1979) and an MBA from the Richard Ivey School of Business (1983).Tom started his investment career in 1983 as an Equity Analyst at Richardson Greenshields. More


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