This year we started teaching Devon about saving money, and he loves it. He grabs any coins or bills we give him and runs around the house doing his best capitalist impression. “Bwahaha,” he says, while lavishly throwing money around.
It won’t be long before he starts managing his own RESP portfolio, which would be a relief because we as Mom and Pop investors have been having a rough year.
First the bad news: since September 21st, the markets lost nearly 20% and Devon’s portfolio had the first significant decline. The good news is that while the S&P and the TSX returned roughly -7% and -9% respectively, Devon’s portfolio only shed -6.2%:
Devon’s portfolio was helped in 2018 by eliminating our exposure to the US market and switching into climate-focused investments. For example, at the beginning of the year we sold our agricultural COW ETF in favour of CWW, a water infrastructure EFT (we previously sold all our other US holdings due to fascism). COW dropped about 25% since due to it’s heavy concentration of US agriculture companies, while infrastructure held up comparatively well. Trade wars are easy to win. Holding on to some cash savings also helped balance some of the declines.
The biggest surprise was how well bonds did in his portfolio — in retrospective, we should have purchased more but we expected rates to do the opposite of what they actually did. It was also surprising how poorly ‘bond like’ instruments performed. Preferred shares, which are half-bond, half-stock, lost more than some stock indexes. As it turns out ‘bond like’ means the exact opposite.
Going into the new year we at Mom and Pop investments are going to decrease Devon’s stock market exposure a bit further. This year we went from having 80% exposure at the start to having 70% exposure in December — as Devon gets closer to actually needing the cash for school, we’ll be gliding down his equity exposure accordingly.
Below is what his five year returns look like so far. 2018 was a year full of surprises in a lot of ways, and as far as the equity markets go, we’re prepared for more of the same in 2019. And if our investment plan does not work out, it looks like Devon will do just fine as a capitalist when he grows up: