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A reader who made 6.5 per cent on his portfolio last year is unclear about how well he did.

His adviser gave him the thumbs up, but he’s not so sure because both the stock and bond markets had a great year in 2019. The S&P/TSX Composite Index made almost 23 per cent on a total return basis (changes in share price plus dividends), while the FTSE Canada Universe Bond Index delivered a total return of 6.9 per cent (changes in bond price plus interest).

This reader explained in a note that he has a moderately aggressive portfolio – he didn’t provide details, but let’s say it was the very traditional mix of 60 per cent stocks and 40 per cent bonds.

The adviser in this case uses his own benchmarks to assess returns and said this client’s return surpassed the benchmark for moderately aggressive portfolios. The adviser also urged the client to focus less on tracking the markets and more on achieving consistent returns over the long term.

“I’m unsure what to make of this logic and whether I should be concerned about the advice I’m getting,” the reader’s note said.

Let’s do some quick math to assess that 6.5-per-cent return. Based on benchmark stock and bond market returns, a 60-40 portfolio (stocks evenly divided between Canada, the United States and international markets) should have returned 15.6 per cent. Subtract two percentage points for advice and fees associated with investments and we get 13.6 per cent, or a bit more than double what this reader made in his moderately aggressive portfolio. It definitely looks like he underperformed last year.

His adviser hasn’t explained the comparatively weak results last year, but did make a valid point about long-term results. If moderately aggressive investors makes 6.5 per cent or thereabouts on an average annual basis for the long term, they’ve done quite well. Even 5 per cent would be a good result.

So let’s put last year’s disappointment aside and urge this reader to check his long-term results – either for his own portfolio or, if has owned it just a few years, for a similar mix of the products he owns.

It’s possible that last year was an anomaly for an otherwise well-built portfolio. Conceivably, funds that are run in a conservative way might have underperformed in the strong markets of 2019 while doing better in weaker markets and still delivering solid long-term results.

This reader should go back to his adviser and ask:

  • Why did my portfolio underperform relative to the main stock and bond indexes last year?
  • How has my portfolio performed over the long term?
  • What is my average annual return after fees for the past five- and 10-year periods?

A good answer to the second question makes the answer to the first question much less urgent. You’d still want to keep an eye on that portfolio, though.

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