The One-Minute Portfolio update
Larry MacDonald is an investment columnist with the Globe & Mail and author of The Shopify Story, ECW Press, Oct. 8, 2024.
The One-Minute Portfolio (OMP) was launched in 2003 to show how easy and inexpensive it is to set up and manage a diversified portfolio.
The OMP is made up of just two ETFs: the iShares S&P/TSX 60 Index Fund (XIU) and iShares Canadian Universe Bond Index Fund (XBB). The purchase of these two ETFs delivers in “one minute” a diversified portfolio of stocks and bonds at an annual management fee under 0.2%.
For the basic version of OMP, the workload consists of little more than annually rebalancing the weights for XIU and XBB if they have strayed more than 5 percentage points away from their respective target allocations of 60% and 40%. In some years no rebalancing will be required. In years when it is required, the rebalancing should take no more than a “minute.”
OMP was updated annually in the Globe and Mail and MoneySense for many years. Since 2021, it has been updated in the Investing Journey blog. Data for the annual updates is obtained from the BlackRock website.
Update for 2024 (and 2023)
For 2024, OMP returned 14.0% thanks to gains of 20.7% in XIU and 4.1% in XBB. A contributing factor was the ongoing moderation in the supply-chain bottlenecks and inflation triggered by COVID.
The compound average annual growth rate (CAGR) for OMP since inception was 7.2%. Not bad for the small amount of time and work required.
In 2023, OMP returned 9.7% for a CAGR of 6.9% since inception.
An alternative OMP
Another version of the OMP adjusts portfolio weights according to market conditions, a concept presented in Benjamin Graham's book, The Intelligent Investor. This version of the OMP was the focus in the updates for 2021 and 2022.
The basic idea is to lower the weight of XIU if it has trended over the past year noticeably above the historical average annual return for stocks. Vice versa, if the trend is below.
In 2024, the weighting for XIU and XXB in the alternative OMP had been set at 50% and 50%, respectively (up from 40% for XIU and 60% for XBB the year before). CAGR since inception was 7.4%, almost the same result as for the basic OMP.
Previous years also yielded returns that were close together for the basic and alternative OMPs. For this reason, it was decided to shift the focus of the yearly updates to the basic OMP, as they provide nearly the same result but with less work.
Further notes
Diversification. OMP has no foreign diversification. Canadian stocks and bonds have delivered better results than just about every other country in the world over the past 115 years (according to the Credit Suisse Global Investment Yearbook), so why take on the work load and costs that come with foreign diversification? Another complication that can affect costs and returns is currency fluctuations and trends.
Bonds. Stocks historically have better returns than bonds so why not put everything into just XIU? The problem is that stocks are quite volatile. Indeed, they have been known to occasionally plunge more than 30% in a year and throw many investors into a panic that they chose to relieve by jettisoning their stock holdings. Including bonds in the portfolio provides a smoother and steadier progression, which makes it easier to stay invested over the long run.
Base period of portfolio. Most investors add new funds to their portfolios over time instead of a lump sum in one year. Their returns can differ from the OMP because the latter just has one contribution year, which is sensitive to the selection of 2003 as the base year.
Packaged offerings. All-in-one ETFs have emerged in recent years to provide balanced portfolios in one ETF. They do the rebalancing automatically, easing the execution burden. Many investors will prefer this. However, the OMP could still retain some appeal for those investors who prefer flexibility when managing their own rebalancing. Annual management costs should also be lower.
(Picture credit: Openclipart, by Jonathan Fritz)