A review of my fund portfolios show that growth wins out over the long term.

Back in 2009 I created several portfolios for mutual fund investors. Two are defensive in nature, designed to protect your assets in difficult times. One is balanced and is designed for RRSPs. The last one is purely growth oriented, with all the risks that entails.

After almost a decade of tracking the results, the conclusion is that risk-taking pays off. Here are the latest updates on my model portfolios. As you will see, the Growth Portfolio is the big winner, by far. Results are as of June 30.
Defensive Portfolio

This portfolio is best suited to non-registered accounts where safety and income are the top priorities. The fund targets an average annual compound rate of return between 4 per cent and 6 per cent.

Performance to date

Initial value (Jan. 1/09) = $25,000
Value at last review (Dec. 31/17) = $39,010.78
Current value = $39,612.80
Change since last review = $602.02
Return since last review = 1.54 per cent
Change since inception (9.5 years) = 58.45 per cent
Annualized compound rate of return = 4.96 per cent

Comments: The upside potential of this portfolio is limited by the defensive nature of its securities. When markets are strong, this portfolio will underperform, as it is right now. But during times of stock market distress, this will offer a relatively safe haven.

Changes: None. The portfolio is performing about as expected, given the conditions. The addition of RBC Global Equity in January gave us a nice boost.

RRSP Portfolio
This portfolio is designed for RRSP accounts. Risk is kept to a reasonable level (we aim for a 60-40 equity/bond split) and the annual target rate of return is in the 6 per cent to 7 per cent range.

Performance to date

Initial value (Jan. 1/09) = $25,000
Value at last review (Dec. 31/17) = $45,439.19
Current value = $46,616.27
Change since last review = $1,177.08
Return since last review = 2.59 per cent
Change since inception (9.5 years) = 86.47 per cent
Annualized compound rate of return = 6.78 per cent

Comments: We made two changes to the portfolio at the time of the January review and both have paid off well. The Fidelity Canadian Growth Company Fund generated a stellar six-month return of 12.68 per cent while RBC Global Equity added 8.16 per cent. Those two funds carried the portfolio to an overall gain of 2.59 per cent for the period.

The big disappointment was the performance of the Beutel Goodman American Equity Fund, which lost a little ground. This was surprising in view of the fund’s excellent past performance and the strength of the U.S. market.

Changes: None. However, we will keep a close eye on the Beutel Goodman fund to be sure that the slippage is only temporary.

RRIF Portfolio

Safety and cash flow are the twin goals of this portfolio. The objective is to provide enough income to allow investors to avoid dipping into capital for as long as possible. The target return is 6 per cent per year.

Performance to date
Initial value (Jan. 1/09) = $25,000
Value at last review (Dec. 31/17) = $40,120.41
Current value = $40,514.73
Change since last review = $394.32
Return since last review = 0.98 per cent
Change since inception (9.5 years) = 62.06 per cent
Annualized compound rate of return = 5.21 per cent

Comments: This portfolio continues to perform below our target average. The soft bond market and the continued weakness in Canadian equities were the primary culprits.

Changes: Overall, this portfolio is falling short of expectations. I do not want to compromise the risk to RRIF assets by raising the equity stake during a period of very high markets. But we can provide more diversification and potentially boost returns by shifting the Manulife Monthly High Income Fund to the Manulife U.S. Monthly High Income Fund. The portfolio is 58 per cent equities (mainly U.S.), 30 per cent bonds, and the rest in cash. Distributions are $0.03 per month ($0.36 per year). The price at the close on July 27 was $11.06.

Growth Portfolio

The portfolio is designed for investors seeking long-term growth and who are willing to accept a greater level of risk to achieve that goal. As you might expect, the portfolio is heavily weighted to equities, however we avoid high-risk funds. The target rate of return is 8 per cent+.

Performance to date

Initial value (Jan. 1/09) = $25,000
Value at last review (Dec. 31/17) = $61,635.37
Current value = $63,716.07
Change since last review = $2,125.70
Return since last review = 3.45 per cent
Change since inception (9.5 years) = 154.86 per cent
Annualized compound rate of return = 10.35 per cent
Comments: It was a disappointing six months for this portfolio, especially with stock markets being strong. Only two of our funds did well. The rest were laggards.

Changes: We had a decent six-month performance from this portfolio, thanks to the addition of RBC Global Equity Fund and Fidelity Canadian Growth Company Fund in January. The Beutel Goodman funds were a disappointment but we will retain them for now.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.