It’s been two years since I sold all of my Canadian dividend stocks and switched to a two-ETF investing solution in my RRSP. I love the hands-off approach, capturing market returns minus a very small fee, plus the instant diversification of owning thousands of stocks from around the world with just two funds.

The downside of this ultra-diversification is that you miss out on extraordinary gains that come from being concentrated in a smaller sector. Anyone with a strong Canadian bias in his or her portfolio no doubt benefitted from the 21 percent surge in the TSX last year.

But who could have predicted that Russia’s main stock index would be up 52 percent, or that the Shanghai Composite would suffer double-digit losses?

Since I don’t have a crystal ball I’m happy to take the best and worst from the entire global market, which tends to smooth out the major volatility and deliver returns closer to a typical average.

Related: Why indexing doesn’t mean settling for average returns

2016 RRSP portfolio rate of return

Each year I diligently track my investment returns to see how well my portfolio has performed. I’m not just looking at the returns of the individual holdings that I own but also how my buying and selling behaviour influenced those returns.

Index investors can see the 2016 model portfolio returns posted here on the Canadian Couch Potato blog. It shows a balanced portfolio (60 percent equities) of TD e-Series funds returned 5.5 percent on the year, while an aggressive allocation (90 percent equities) returned 7.7 percent.

Similarly, a balanced portfolio of Vanguard funds returned 6.7 percent, while an aggressive portfolio returned 9.4 percent.

How did my portfolio stack up?

My RRSP is made up of 25 percent VCN (Canada All-Cap Index) and 75 percent VXC (Global All Cap ex Canada).

The rate of return for my RRSP portfolio in 2016 was 8.76 percent:

2016 RRSP Portfolio Rate of Return

So my personal rate of return did not perform as well as the underlying investments that make up the Vanguard model portfolio with an aggressive allocation mix. This is likely due to the timing of my lump sum contributions earlier in the year.

Historical rate of return for my RRSP portfolio: 

  • 2016 – 8.76%
  • 2015 – 9.36%
  • 2014 – 8.53%
  • 2013 – 13.62%
  • 2012 – 12.34%
  • 2011 – 9.82%
  • 2010 – 35.54%

I target a nominal return of 8 percent annually for my retirement planning projections.

RESP portfolio / TD e-Series funds

We invest in TD e-Series funds for our kids’ RESP account. It’s easy (and free) to make monthly contributions, which get invested into the Canadian index, U.S. index, and International index funds.

I use my judgement to decide which fund to invest in with the idea of maintaining a 33 percent allocation for each fund. That becomes trickier as Canadian, U.S., and International markets stumble or surge, but I’ve managed to stick to that rough guideline.

The rate of return for my RESP portfolio in 2016 was 10.16 percent:

2016 RESP Portfolio Rate of Return

This portfolio outperformed the model portfolio with an aggressive allocation mix by nearly 2.5 percent, which is interesting because instead of a lump sum contribution early in the year I contribute smaller amounts on a monthly basis.

Investment return vs. Investor return

Investment return is how well a particular stock, mutual fund, or ETF performed over a specific period of time – typically reported over a calendar year. Investor return is your personal rate of return and takes into account any buying and selling throughout the year that can affect your portfolio’s performance.

Related: The big list of behavioural biases

The difference between investment return and investor return is referred to as the behaviour gap, a term coined by financial planner and author Carl Richards. Your personal rate of return varies and is influenced by making regular contributions throughout the year, adding a lump sum contribution, or buying and selling individual holdings within your portfolio.

Final thoughts

As of January 2017, financial institutions are required to provide investors with their money-weighted rate of return, however you can track your portfolio returns more accurately with the help of a rate of return calculator.

Indexers, mutual fund investors, and do-it-yourself stock pickers should all be monitoring their personal rate of return as it compares to specific investment benchmarks as well as to the individual holdings that they own.

How did your portfolio perform last year?


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