2013 MoneyGeek Portfolios In Review

January 9th, 2014

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This blog post was originally published on the blog by Jin Choi. The website no longer exists, but Jin has graciously allowed us to re-publish his research for the benefit of future investors forever.

MoneyGeek Performance Summary

2013 was the first year of MoneyGeek's operation. For those of you who are new, I offer optimally allocated model portfolios (amongst other tools) through the paid subscription, which is unavailable as of this writing. I've tabled the performance of the regular model portfolios since its inception on March 13, 2013 below.

PortfolioReturns Since Mar 13, 2013
Regular Portfolio 1 (Safest) +4.4%
Regular Portfolio 2 +7.1%
Regular Portfolio 3 +9.8%
Regular Portfolio 4 +12.6%
Regular Portfolio 5 (Riskiest) +15.4%

I've also started offering premium portfolios for premium members since May 1, 2013. I've tabled the returns below.

PortfolioReturns Since May 1, 2013
Premium Portfolio 1 (Safest) +13.2%
Premium Portfolio 2 +15.6%
Premium Portfolio 3 (Riskiest) +18.1%

Please note that none of these results have been audited, but our members can verify these results since they have full knowledge of the portfolio details.

Regular Vs. Premium Portfolios

Regular portfolios mostly consist of stock and bond ETFs (plus one stock, as of the time of this writing), whereas premium portfolios consist exclusively of stocks. In both cases, the portfolios are aimed at outperforming mutual funds. In other words, they try to deliver higher returns given the same risk. However, they go about it in different ways.

The regular portolios aim to outperform mutual funds by cutting down on costs. ETFs that make up the regular portfolios charge roughly 2% per year less than the average comprable mutual fund, yet they both invest in many of the same financial securities.

Premium portfolios on the other hand, try to achieve higher returns through stock picking. I personally hand pick each stock that goes into the portfolios. Specifically, premium portfolio 2 reflects a large portion of my own stock holdings.

As premium portfolios consist of stocks, they are far less diversified than regular portfolios, and hence more risky. The safest premium portfolio is riskier than the riskiest regular portfolio. Personally, I don't recommend signing up for the premium portfolio unless you have a fair bit of investing experience already.

Given that the safest premium portfolios is riskier, you would expect it to have returned more than than the riskiest regular portfolio. However, premium portfolio 1 underperformed regular portfolio 5 by 2.2%.

Partly, that's because regular portfolios started in March, whereas premium portfolios started in May. But another possible explanation is that I'm just a lousy stock picker. While this could be the case, it's too early to tell. Even legenedary investors like Warren Buffett has had years when he underpformed the market. The truth is, it takes multiple years before it becomes apparent that I have any skill.

The same goes for those whowill inevitably boast that they beat the market in 2013.They may have done so, but you should watch them for multiple years to see whether they''re the nextBuffett, or whether they're the next John Paulson (the hedge fund manager who made tons of money in 2008, only to start underperforming thereafter).

Regular Portfolios Vs. Competitors

Turning our attention back to the performance of our regular portfolios, let's compare our results against that of some of the banks', as well as the popular Canadian Couch Potato portfolios.

PortfolioReturns Since Mar 13, 2013
RBC Select Aggressive Growth +15.3%
RBC Select Growth +11.2%
RBC Select Balanced +6.6%
TD Comfort Aggressive Growth +11.1%
TD Comfort Growth +7.3%
TD Comfort Balanced Growth +4.7%
Global Couch Potato +8.9%
Complete Couch Potato +4.9%

MoneyGeek's regular portfolio 5 has a similar risk profile to RBC and TD's aggressive growth portfolios (actually, RBC's is a bit riskier, but it's close enough). In this category, MoneyGeek's portfolio smoked TD's aggressive portfolio, but only managed to edge out RBC's aggressive portfolio. If you had $10,000 invested in MoneyGeek's portfolio, you would have gained $1,540 last year, whereas investing in RBC's portfolio would have gained you $1,530 - a difference of just $10. In fact, if you take our fees into account ($45+tax per year), then you would have been better off investing in RBC's portfolio.

In light of this, you might wonder if you should bother with investing in ETFs at all - perhaps you should just invest in RBC's fund instead. However, I think this would be a mistake.

Humans have a tendency to think that recent performances will carry into the future. If a fund outperforms the market by 5%, then investors think they'll outperform again the next year. However, some studieshave concluded thatpast performance doesn't actually predict the future. You can read about some good reasons for this here. Instead, it's useful to think about mutual fund performance like outcomes of dice rolls. You shouldn't expect to roll a high number, just because you rolled a high number before.

Instead, I believe MoneyGeek's most aggressive portfolios will beat that of the banks' and other mutual funds in the long run. Time will tell if I'm right or wrong.

At the other end of the risk spectrum, MoneyGeek's regular portfolio 3 has a similar risk profile to RBC and TD's balanced portfolios, as well as the Global Couch Potato portfolio. In this risk category, MoneyGeek's portfolio handily outperformed its competitors.

Why? Because of bonds.

The less risky portfolios contain a large portion of bonds. But the duration of the bonds differed from fund to fund. While I can't be certain, I think the banks' funds held large quantities of medium to long term bonds, as did the Couch Potato's portfolio. On the other hand, MoneyGeek's portfolios only held short term bonds.

Short term bonds are much less sensitive to interest rate movements than long term bonds. Whereas those who held short term bonds made money despite the interest rate increases, those who held longer term bonds lost money.

This concludes the first annual review of MoneyGeek's portfolio. If you want monthly updates on our portfolios, make sure to sign up for our newsletter below. Thanks for reading, and I hope you have a propserous year.

This blog post was originally published on the blog by Jin Choi. The website no longer exists, but Jin has graciously allowed us to re-publish his research for the benefit of future investors forever.

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