Never, never, never judge the thinking that went into your investment portfolio at the worst point in a stock market plunge.
Unless you hold cash or guaranteed investment certificates, your portfolio almost certainly looked like dog food in early April. “What was I thinking?,” you probably asked yourself a hundred times over.
Investing results to May 31 offer vindication to all well-diversified investors who thought they somehow blew it because their portfolio was so badly mauled in the worst of the pandemic-driven stock market crash. As a proxy for the generic balanced portfolio, let’s look at a pair of balanced exchange-traded funds:
- The iShares Core Balanced ETF Portfolio (XBAL) was down just 1.1 per cent for the year through May 31, and was up a tidy 5.8 per cent for the previous 12 months on a total return basis. As of March 31, the year-to-date result for this fund was a loss of 10 per cent.
- The Vanguard Balanced ETF Portfolio (VBAL) was down 1.3 per cent year-to-date and up 5.4 per cent for the past 12 months. The loss for the year to March 31 was 10.4 per cent.
Both of these ETFs offer a cheap way to buy a portfolio with that most traditional of diversification formulas: 60-per-cent stocks, 40-per-cent bonds.
Did you think a portfolio like this wasn’t smart enough for the complexities of today’s financial market conditions? You might have, given all the market gyrations in the market crash.
Diversified bond ETFs actually fell in the very early going. But for the five months to May 31, the benchmark FTSE Canada Universe Bond Index gained a decent 5.7 per cent on a total return basis (interest plus changes in bond prices). The S&P/TSX Composite Index was still down 9.7 per cent for the year as of May 31, but that’s half the loss for the first quarter of the year.
We could see another downturn for stocks if the economy is slow to rebound from the pandemic lockdown. If those self-doubts you experienced about your portfolio in March resurface, relax. You will be vindicated.
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Rob Carrick