Annual Report Q&A

Q> So...what’s important for me to know?

A> That’s up to you and your individual choice. At minimum, we ask you to read the SUMMARY to know how your money is doing—and that is told by how much your portfolio earned, in both dollars and the rate-of-return. If you are a couple and/or have multiple accounts with us, we report here the overall return. The rate of return data includes your simple return for the past year and, most importantly, your long term compound return since you started with Trivest. If you are interested further, you can drill down to every level in your report that we drill down to every month in managing your money...right down to the annual return of every security you own.

Q> How do you calculate my rate of return? And what does it include?

A> Your return is calculated by the fraction of the income earned in the portfolio divided by your “invested capital”. The income includes dividends and interest. Some of the interest is received in cash and some is “accrued” in the growing value of a strip bond. The income also includes appreciation or depreciation in the value of your holdings, whether those were realized through a sale or remain unrealized on paper. Your invested capital starts with the opening invested amount and time-adjusts through the year for any contributions or withdrawals of funds.

Q> What does “compound return” mean?

A> This is the average return PER YEAR that you have made for some period of time, eg 3, 5 and 10 years and since inception. It is algebraically derived from the collection of past “simple” returns.

Your compound return is a function of your Asset Allocation Plan, the vagaries of the market, the period measured in the compound calculations and the specific holdings and stewardship of your  portfolio. The longer the compounding period, the more relevant it is to assessing your investing success.

 Q> What is a good compound return?

A>   If you have had a long term Financial Plan prepared, then there is a long term rate-of-return implicit in that Plan that helps you live out your life to a desired standard. We believe that a good compound return is one that approximates, or exceeds, the return implicit in your Plan. If your spending habits also approximate your Plan, then your future should play out nicely. Ideally, such returns could also be benchmarked against some external index. Practically though, it is difficult to construct a benchmark which fairly stacks up against one’s own portfolio.

Q> What is the purpose of an Asset Allocation Plan, and where does it come from? 

A>   We think asset allocation is very important. It quantitatively speaks to your risk profile. In the longer term, the return you earn should correlate with the risk profile you choose to take. You may choose to change this Plan over time in consultation with us. For many people, the Plan comes from a detailed long term Financial Plan, which they may have done through us or elsewhere. Otherwise, it is derived from conversation with you and from soul searching your own attitudes towards money and considering what the money is for. We report how your actual portfolio is adhering to your Plan.

Q> What are the two lines and bars on the graph?

A> The lines track (on the right scale) your annual total portfolio simple returns across the years. This number likely will bounce around a lot, reflecting the ups and downs of the markets. The other tracks the running compound returns (see above) across the years. This number will fluctuate much less and is a better indicator of how you are doing. The bar (on the left scale) is the dollar value of your portfolio across the years.

Q> Individual account reports: What are all those sheets attached at the back of my annual report?

A> If you hold multiple accounts with us (eg, RRSP/RRIF, TFSA, Trading), the activities and returns in each are reported separately. We practice “tax-smart” investing, which means that certain kinds of investments are better suited in certain kinds of accounts. This may mean that certain accounts are designed to hold lower-earning securities; thus, their return may seem poor, but they are supporting the greater overall strategy. You should focus on the overall portfolio return, not those on individual accounts.

Q> What are all of those return rates on my fixed income portfolio?

A> When you first buy a bond, you have locked in a guaranteed return rate for the life of the bond. This is the “yield-to-maturity”. We perform calculations that determine what your average yield-to-maturity is across your entire bond portfolio. This is useful in assessing what the “safe” part of your portfolio is giving you. In the marketplace, the value of your bonds are constantly changing in response to present-day interest rates. Thus, the return for a single year (which we call your “current” yield) likely will be different than the yield-to-maturity. Again, we perform calculations that determine what your average current yield is across your entire bond portfolio. In some years, this return can be much higher than your yield-to-maturity, and this may be the backbone in your portfolio in a year when the equity markets are suffering. 

Q> What is the point of the information related to “sector” and “international allocation” percentages?

A> It’s that D-word-diversification. We have monitoring systems that track how your equity investments are distributed, and this system tabulates a summary which we include in your Annual Report. The sector analysis tells us how you are exposed to the different industry categories that make up the global economy. Different sectors shine at different times, and so we want to be sure you are minimized when bad times hit and will also be there to enjoy good times. The international allocation attempts to track how your money is participating in the different world economies. As companies become more-and-more global in scope, pigeon-holing them based upon their head office or stock exchange listing locations becomes a bit arbitrary. That is why we reference “globally-distributed” in your report.