Funny enough from a guy who manages his own brokerage account since the age of 21 (13 years ago!), I must admit; I left others to manage the money for my children’s tuition. It made sense for a while since I found it easier for me to let someone else take responsibility for these funds. I hired the best to do the job, to make sure my kids could all become doctors if they wanted to…
Why I Invested in Mutual Funds (OMG!)
Yeah… this is what I did… I invested in high fee funds managed by professionals (or so they say! Hahaha!). However, I didn’t do this because I thought the portfolio managers could do a better job than me (we already had a great discussion about this…).
I knew that fees would eat up a part of my returns, but I didn’t find any better investment options for a while considering the way RESPs (tax sheltered accounts to pay for children tuitions) are setup. First, I was putting $225 per month in that account. This makes it hard to buy individual stocks in the first place. Then, there is a 20% subsidy coming from the Federal Government and another 10% from the Provincial Government. You can guess that everything is simple with the Governments and both subsidies are paid at different moments. Managing the account at this point was very demanding and the benefits weren’t important enough.
When you think about it, even if I could generate 5% in return more than a mutual fund, 5% of $3,510 ($225 per month plus the 30% subsidy) is only $175.50. This is why I waited to have enough money in the account before making any serious moves.
Mutual Funds Vs DIY Dividend Growth Investing
When I built my children’s portfolio, I opted for a growth strategy including 75% of my investments in equities (equally divided between small caps, Canadian and American stocks) and 25% in preferred stocks. I did this for three years and decided to compare my results between my retirement account and the RESP account before making a final decision. Guess which portfolio is which between:
3 Years: 8.26% Vs 17%
1 year: -2.85% Vs 10%
Did I beat crush mutual funds over 3 years or did I get whipped?
Here’s the detail return of each year and the answer to this question:
| Mutual Funds | My Dividend Growth Portfolio | |
|---|---|---|
| 2013 | 17.23% | 21.70% |
| 2014 | 11.21% | 16.40% |
| 2015 | -3.78% | 9% |
Yeah…. I crushed the professionals for three years in a row!
That was the final argument to convince me it was the right time to switch the holdings to my brokerage account. I opened my account and am now waiting for my money to be transferred. This should take a few weeks. This gives me enough time to think of what my portfolio will look like.
My Next Portfolio will Look Like this…
My children’s tuition fund will be worth about $10,000 at the time of the transfer. I expect to buy 4 maybe 5 companies following my DSR portfolio design. However, since I’m not a beginner investor, I will be more aggressive. At the moment, I intend to initiate positions in 3M Co (MMM), BlackRock (BLK), Apple (AAPL) and Canadian Railway (CNR.TO or CNI for US investors). I might add a fifth company but I’m not sure yet. What do you think?
It is great to see these types of comparisons between personal investments and those done by “professionals.” I hope to maintain my commitment to my positions and realize similar success. Thanks for sharing!
To be honest, I would have made the move even if my results would have been worse than mutual funds. However, I’m glad I did better! hehehe!
Good idea to compare actual portfolios that use different investment strategies. I ran some calculations on my RESP accounts, which are invested in TD’s e-series index funds, and they also beat the return from your mutual funds, and also did pretty well compared to my dividend portfolio. Maybe I should simplify things and become an index investor. 🙂
One of the reasons you cited for buying mutual funds is that they make it easier to manage the trickle of new money going into the RESP account. How are you going to manage this in your brokerage RESP account?
Are you concerned about currency risk in your RESP account? Presumably you will need CAD to pay for your kids’ post-secondary education.
Hello JD,
Now that I have $10,000 to invest, it will be easier to manage this money.I will not contribute until I come back from my RV trip. At that time, I will probably contribute with a lump sum each year to make it easier to manage.
The currency issue is a good concern. I’m convince the USD will worth more than the CAD for the next 20 years. The Canadian economy is not diversified enough to show a stronger currency than the USD. For that reason, I think investing in US stocks is still a good move.
Cheers,
Mike
I’m a DGI as well. I beat your 2013 results, matched your 2014 results but am underperforming your 2015 by 8% YTD. Your 2015 performance is outstanding compared to most DGIs this year. Congrats!
I t’s really a crap shoot with picking mutual funds but the ones that have good long term track records tend to continue to outperform. A few Mawer and Sentry funds I’ve followed and/or owned in other accounts almost always outperform the indexes they track. I’ve found low fee doesn’t necessarily guarantee superior performance unless you’re referring to the broad market indexes.
Good job on beating me on 2013 🙂 This was a great year, isn’t?
You are right; low fees don’t mean high returns. And I think we will do both better with our DGI strategy 🙂
Cheers,
Mike
Nice work Mike! I often wish I had an apples-to-apples comparison for this sort of thing. Our portfolio has beaten the S&P 2 of the last 4 years, but 2013 was tough. Still, it’s not a fair comparison because we have done it with with lower risk. We have been growing a huge cash reserve over the last 18 months. I think it’s just human nature to wonder, what if…… Keep up the great work. Your kids will thank you!
-Bryan
Hey Brian,
yeah… we can’t compare when we don’t have the same allocation. Technically, even my comparison is flawed since my mutual funds weren’t focus on dividend paying stocks (only equity in general).
Cheers,
Mike
Thanks for the article Mike.
I like the fact that you will be taking the responsibility in managing your kids portfolio. Good on you. I manage my wife and my portfolios however, for my daughters I made an RESP account with a company called Knowledge first financials and it’s contracted for 10 years already. The return is about 5 percent a year so it’s okay. If I knew what I know now, I would just took it on myself to take care of it for them but it’s all good.
You live you learn.
Have a nice weekend bud.
Hey Tyler!
Congrats on saving money for your kid’s future. This is so important! I wish I could use the RESP for high school as well… private school will be expensive!
Cheers,
Mike