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One of the worst mistakes investors make is overtrading. It fattens brokerage commissions while quickly gobbling up your money.
That’s why I created the Internet Wealth Builder Buy-and-Hold Portfolio ten and a half years ago. I wanted to show readers that buying high-quality stocks and sticking with them through both bull and bear markets could generate good returns and save money on commissions. The performance over the years has proved the point: an average annual compound rate of return of 11.73%.
The portfolio has one basic goal – invest in great stocks and then hold on to them, no matter what the market is doing. The underlying thesis is that the long-term trend of the markets is up. If you own good stocks, they’ll move with it.
The portfolio consists mainly of Canadian and U.S. blue-chip stocks that offer long-term growth potential. It also has a bond ETF holding. The original weighting was 10% for each stock with the bond ETF starting with a 20% position. That has now been reduced because equity increases have outpaced the bond market.
I used several criteria to choose the stocks. These included a superior long-term growth profile, industry leadership, a good balance sheet, a history of dividend increases, and relative strength in down markets.
The objective is to generate decent cash flow (all the stocks but one pay dividends), minimize downside potential, and provide slow but steady growth. The target rate of return was originally set at 8% annually.
These are the securities we hold with comments on how they performed since my last review in June. Prices are as of the afternoon of Dec. 1.
iShares Canadian Universe Bond Index ETF (TSX: XBB). It’s been a long time coming, but we’re finally starting to see a turnaround in the bond market. XBB units are up $0.67 since the time of our last review in late June. That’s not a lot, but it’s better than the consistent losses we experienced earlier this year. We received distributions totalling $0.398 per unit.
BCE Inc. (TSX: BCE). BCE shares scored a modest gain of $1.64 during the latest six-month period. Because of timing, we received one dividend during the period for a total of $0.92 per share.
Brookfield Asset Management (TSX: BAM.A). Brookfield shares are recovering after taking a big hit at the start of the year. The stock gained just over $5 in the latest period. We received two dividends for a total of US$0.28 a share.
Canadian National Railway Co. (TSX: CNR). CN has been a strong performer for us, but the shares slipped in the first half of the year. They’ve made an impressive comeback since, however, with a gain of $30.59 since our last review. Because of timing, we received one dividend payment of $0.733 a share.
Enbridge (TSX: ENB). Enbridge shares continued their slow but steady advance in the latest period. The shares are ahead $1.99 since the June update. We received two quarterly dividends of $0.86 each.
Toronto Dominion Bank (TSX: TD). The banks are starting to recover from their setbacks in the early part of the year. TD is up $7.78 since our June review, and we received two dividend payments of $0.89 each for a total of $1.78 per share.
Alphabet (NSD: GOOGL). The shares split 20-1 over the summer, so we now own 160 shares at a much more manageable price. The split didn’t halt the price decline, however, as the high-tech sector remains under pressure. This is the only stock in the group that does not pay a dividend.
UnitedHealth Group (NYSE: UNH). UNH is the top health insurer in the U.S. and the number one performer in our portfolio, with a total return of over 400%. The shares gained US$37.10 (7.4%) since our last review. We received one dividend due to timing, for US$1.65 per share.
Walmart Inc. (NYSE: WMT). After a lacklustre first half this year, Walmart stock turned around and gained almost $30 a share in the latest period. We received one quarterly dividend of US$0.56 per share.
Cash. We moved our cash of $2,615.55 to a Wyth High Interest Savings Account, which paid 1.80%. We received $23.54 in interest.
Here is the status of the portfolio as of Dec. 1. The Canadian and U.S. dollars are shown at par, but obviously the U.S. holdings are doing better thanks to the strength of the greenback. Trading commissions are not factored in, although in a buy and hold portfolio they are not significant in any event.
The new portfolio value (market price plus retained dividends/distributions) is $160,065.12. That compares with $147,368.42 at the time of the last review, for a gain of 8.6%.
All our securities, including the bond fund, posted gains during the period with the exception of Alphabet, which sold off with the rest of the tech sector.
Since inception, we have a total return of 220.5%. That represents an average annual compound growth rate over 10.5 years of 11.73%. That is well ahead of our 8% target.
This is a buy-and-hold portfolio, so I am not making any changes to our holdings. The bond ETF is finally showing signs of recovery.
We will use some of our retained earnings, as follows.
XBB – We will add 10 units at a cost of $280.50. We now own 520 units, and our retained income is reduced to $135.03.
ENB – Enbridge continues to gain, so we’ll buy another 10 shares at $54.96 for a cost of $549.60. That will bring our position to 210 shares. The cost will eat up our retained earnings, so we’ll take $54 from cash to make up the difference.
TD –We’ll purchase another five shares at $91.79, for a cost of $458.95. We now own 185 shares and have retained earnings of $76.20.
We have cash and retained earnings of $2,726.17. CIBC is offering a special rate of 4.5% on new eAdvantage Savings Accounts, so we’ll more our money there to take advantage of it.
Here is the revised portfolio. I will update it again in June.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. To take advantage of a 50% saving on a trial subscription and receive the special report “The Tumultuous Twenties,” go to https://bit.ly/bwGP20s.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
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