CapitalTime

Articles on investing and capital management, with a quantitative focus.

Nine Year Portfolio Anniversary

2025-03-22

I started my PRP portfolio 9 years ago. Over these years, PRP has returned 7.2% CAGR. This is slightly higher than the long term historical theoretical 6.8% CAGR. All figures are in CAD currency.

These nominal rates of return can be misleading, since inflation has increased in recent years. What really matters is the real return after inflation.

The Real Return

I used the Bank of Canada’s calculator to calculate inflation over the time periods, and used this to convert nominal returns to real returns. All of this is based on the government’s CPI measure. I think this underestimates the inflation I experience, but it’s the only standard measure available.

The table shows the historical long term (theoretical) real return, as well as PRP’s real return.

My real return since starting the PRP portfolio is reasonably close to the historical back-test. However, the real return suffered during the last few years of high inflation.

PRP has a large weight in bonds, and these performed very poorly in the last 4 years, with a disastrous -3.4% real return. This dragged down PRP’s overall performance.

Performance comparison

I will compare PRP to XBAL, a low-fee 60/40 balanced fund which has some of the same holdings. I am hoping to see performance in the same ballpark, though XBAL should have slightly higher performance due to a higher equity weight.

Both portfolios had similar performance in the last 9 years.

— Jem Berkes