Are your investment returns good enough to fund your retirement?

It’s not easy to tell if you have achieved acceptable investment returns for your retirement savings.

Let’s say that Audrey’s average annual return – net of fees – over the 10-year period ending Dec. 31, 2023, was 5 per cent. Stella’s return over a five-year period ending in 2023 was 7.5 per cent. Which one got better results from her investment adviser? Well, it depends on how much risk they took.

Audrey is risk-averse and had agreed with her adviser 10 years ago to adopt a 25/75 asset mix – 25 per cent in equities and 75 per cent in bonds. For a comparable benchmark fund (described below), the return over 10 years was just 4.5 per cent after fees – this is labelled “conservative” in the chart. Hence, Audrey’s investments outperformed that benchmark by 0.5 per cent a year.

Stella was more willing to accept risk and adopted a 75/25 mix. Over the five-year period ending Dec. 31, 2023, this more aggressive benchmark fund achieved an average return of 8.6 per cent or 1.1 per cent a year more than what Stella’s portfolio actually earned. Given the risk that Stella took, her investments underperformed.

The return you should expect depends on what a benchmark fund with similar risk would have achieved over the given period. In addition, focus on returns after investment fees.

To construct the benchmark funds for this chart, I took the returns of four core ETFs that track different markets. For equities those ETFs track the S&P/TSX Index, the S&P 500 Index (hedged to the Canadian dollar) and the MSCI EAFE Index. The bond ETF tracks the Canadian Universe bond index.

Over the one-year period ending Dec. 31, 2023, the returns for these benchmark funds ranged from 9.5 per cent (conservative benchmark) to 13.8 per cent (aggressive). Over longer periods, the returns were generally much lower.

Note that these benchmark funds took almost no time to construct and require almost no effort to maintain. Any investor who is paying for active fund management should therefore expect to beat these benchmarks.

If not, they should question why they chose active management, which involves higher fees, rather than passive management using core ETFs. The real work of an investment adviser, in my opinion, is arriving at the right level of risk, since it varies from one investor to the next.

Frederick Vettese is a former chief actuary of Morneau Shepell and the author of the PERC retirement calculator (

Read More: Are your investment returns good enough to fund your retirement?

2024-04-02 20:55:20

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