December Dividend Portfolio Review - Year End Review

Written by The Dividend Guy on December 30, 2007

Monthly Dividend Portfolio Review

In a month when the S&P 500 was up only 0.6% and the Dow the same at 0.6%, there was a lot of volatility. I think it is safe to say that this past year has been one crazy volatile year in the markets. However, I think it is important to note that one year does not make a portfolio. As William Bernstein speaks about in his book, The Intelligent Asset Allocator, a properly allocated portfolio will not necessarily beat the market every year, but over the long term it should at least meet it. In other words, even with an optimal asset allocation, there will be years when portfolios do worse than the market but long-term this should average out and your long term results will be fine.

Even though the markets are open on December 31st, the overall index returns are pretty good given the crazy year we have just come out of. Here are the year-to-date results as per Morningstar:

YTD Index Returns

My own personal portfolio can be summed up by one phrase - those damn bank stocks. I got totally annihilated because of my over-exposure to the bank sector, namely my Citigroup and Bank of America holdings. RBC Royal Bank help up alright considering the mess in the U.S. markets. Over the next few years I will need to lessen my exposure to the banking sector.

My annualized return year-to-date is 0.3% which is not great but it puts me very close to my benchmark. The benchmark I track my portfolio to is the FPX Growth index provided by the R.N. Croft Financial Group. I use this index because my target asset allocation is not 100% equities and tracking to something like the S&P 500 does not meet my needs because of this. The return on this benchmark to December 21st was 0.43%.

I have altered my asset allocation as I have been pouring over William Bernstein’s work and firmly believe I need to create an asset allocation that will bring in less volatility. I recognize that this new allocation will mean that I don’t meet the market returns every year, but over the long term it should match the market with much less risk than I am taking on now. Here is how my portfolio looks given this new asset allocation:

Asset Allocation - DecemberClick to Enlarge

As you can see, I need to adjust my Canadian holdings and bring up my fixed income holdings. In December I took some action and moved some money from my CC&L Bond fund over to the international fund in my pension plan. This brought my global equity allocation much closer to my target but did nothing for my fixed income allocation. This will be worked on as well in the new year.

As mentioned, my sector allocation is heavily skewed towards the financial sector and I will be working on getting this in line. Here is how my sector allocation looks today:

Sector Allocation - DecemberClick to Enlarge

And finally, here is my overall portfolio as of December 28th.

December Portfolio AllocationClick to Enlarge

I hope next year will be a better year for the markets, although I think we will see some continue volatility. Remember not to get too influenced by the negative media spin - stick to your plan and do not act on emotion.


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11 Comments so far

  1. moneygardener December 30, 2007 11:56 am

    Nice summary.

    Bernstein would actually hate your portfolio. I am currently reading The Four Pillars of Investing, and so far it seems as though Bernstein is strongly against buying individual stocks like you and I do.

  2. FourPillars December 30, 2007 12:43 pm

    Great post - I like the charts.

    MG - you’re right that Bernstein wouldn’t like the individual stocks but he would like the diversification by region, the fixed income portion (target amount) plus the low costs.

    I haven’t read the Intelligent Asset Allocator yet - I’ll do it this year.

    Mike

  3. The Dividend Guy December 30, 2007 1:09 pm

    Hey MG and FP,

    You guys are exactly right and I should have mentioned that in the post when referencing him - he is very much against individual stocks and suggests an all index portfolio.

    As I have stated before however, I love the process of selecting individual stocks and don’t want to move away from that. I fully recognize the risks of doing this and am comfortable with it - I saw that in my results on the banking side this year.

    I also believe that on the equity side of the portfolio one can build a diversified portfolio of individual stocks with 15 - 20 securities.

    Thanks for the comments.

    The Dividend Guy

  4. Dividends4Life December 30, 2007 1:56 pm

    TDG: Have you ever looked at all your holding across sectors? I am toying with trying to break down all my holdings by sector, across my 401(k), IRA, mutual funds, ETFs and individual stocks. Like you I suspect I am way over-exposed to banking and Financial in general. The funds and ETS will be more challenging.

    Best Wishes,
    D4L

  5. moneygardener December 30, 2007 2:32 pm

    D4L, Funny that we’re discussing Bernstein and treating your entire financial holdings (all portfolios) as one big one, is another principle he is big on.

    Divividend Guy, I agree with you and I am of similar mind with my non-reg. portfolio.

    ..MG

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  7. Paul December 30, 2007 8:58 pm

    For those of us who went into bank stocks “too soon,” we have paid the price, but I continue to remain confident of the strength of the franchises for the likes of BAC, C and RBS, although I’m heavier in preferreds than common stock. But I think we can build dividend portfolios with individual stocks, across a broad spectrum of sectors, albeit at generally lower dividend yields.

  8. Adeem Zafar December 31, 2007 1:11 pm

    I noticed that you hold most of your dividend stocks in RRSP accounts. Wouldn’t it make more tax sense to hold outside an RRSP to take advantage of the dividend tax credit?

  9. MM December 31, 2007 8:12 pm

    Same as you, I like picking individual stocks, but I’m trying to keep 65% of my money on mutual funds and ETFs.

    BTW, you might want to take a look at this article … maybe we all confine ourselves to the “traditional” asset classes:

    http://www.smartmoney.com/mag/index.cfm?story=september2007-league

  10. Rob Madrid January 1, 2008 1:32 pm

    If your main focus is on dividends shouldn’t you be less concerned about volitiality? Also rather suprisingly you have very few income trusts. I’m going to be a more regular reader and commentator as my Wife and I are reaching the point where we have alot more money to put into investments. Biggest issue we face is we don’t live in Canada so I’m not quite sure how to handle the exchange rate thingy. Buying CDN dollars is great when you being paid in euros but will suck when the reverse is true.

  11. Choosing Fixed Income Assets to Meet my Target Allocation » The Dividend Guy Blog January 6, 2008 9:14 am

    […] in line with respect to my fixed income investments. I introduced this briefly in my most recent portfolio review. I have drastically bumped up my fixed income target allocation in my portfolio and now need to […]

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