Investment Returns

                                                            YTD Change        Oct. 17, 2016

TSX 300  Index:                                  12.20%                    14,596.52

S&P 500 Index :                                    4.04%                      2,126.50

U.S. 10-year Treasury bond               +22.02%                      1.766%

Take a good look at the numbers above and compare to your own portfolio returns and let me know if you are anywhere close.  The reality is that most investors’ returns trailed the major indices. I would think that the average individual returns hover around 1%-2% at best, and money managers, a little better, at 2%-3%.

Do you know that on average, less than 20% of mutual funds or ETFs even beat the market? Funds that beat the market this year in Canada include gold, silver and energy related.  Since the TSX 300 is heavily skewed towards these sectors, it has outperformed major global stock markets . The S&P 500 index in the U.S. is much more diversified.

Global uncertainties such as Brexit, slowing China economy, recessions in  Brazil and Russia, weakening Europe have all contributed to a decline in interest rate as central bankers struggle to get the economy going and have to resort to easing monetary policies. The U.S. remain the strongest, but going into the November 8 election with some uncertainties. . As a result, interest rates have declined 22% as shown by the 10-year U.S. Treasury bond.  Since bond prices are inversely related to interest rates, those holding bonds or fixed income investments have been rewarded quite handsomely this year.

The message here is that investors should manage their return expectations when planning for their future.  The Financial Planning Standards Council  of Canada (FPSC) issued the following projection guidelines for 2016 assuming a 1.25% management fee:

Conservative:      3.30%   (25% equity, 70% fixed income,5% cash)

Balanced:            3.94%    (50% equity, 45% fixed income, 5% cash)

Aggressive:         4.80%    (75% equity, 20% fixed income, 5% cash)

Factoring in a 2.1% inflation (think hydro bills,auto insurance rates, childcare and higher education costs), and the projected returns declined to 1.2%, 1.84%, and 1.62%, respectively.