2021 Investment Returns

2021 Investment Returns

Happy New Year! 2021 was another crazy year for investors. Unlike 2020, which saw global stock markets shrug off a 30% decline before posting positive returns for the year, 2021 began with a meme stock craze and ended with a flurry of new all-time highs in both Canadian and US stock markets.

In this post I’ll share the 2021 investment returns for global stock and bond markets. Since you can’t directly invest in an index, I’ll use the performance of various Canadian-listed Vanguard ETFs as a proxy for each index.

2021 Investment Returns

Who predicted that Canadian stocks would lead the way in 2021? That’s exactly what happened with Vanguard’s FTSE Canada Index ETF (VCE) posting a 28.50% return. VCE closely matches the S&P/TSX 60 (the largest stocks in Canada), but Vanguard also offers a broader “all cap” Canadian index fund (VCN), which tracks about 180 stocks, and it returned 25.61% in 2021.

U.S. stocks continued their astonishing run in 2021. Vanguard’s S&P 500 Index ETF (VSP) returned 27.90% in 2021, while the broader US Total Market Index ETF (VUN), which tracks about 4,000 stocks, returned 24.41% in 2021.

These results speak to the continued dominance of large cap growth stocks, particularly south of the border.

On the international side, Vanguard’s FTSE Developed All Cap ex North America Index ETF (VIU) returned 9.57% last year, while Vanguard’s FTSE Emerging Markets All Cap Index ETF (VEE) was flat with just a 0.08% increase in 2021.

It was a poor year for bond returns, but maybe not as bad as some initially feared.

Vanguard’s Canadian Aggregate Bond Index ETF (VAB) posted a -2.85% return for the year, after increasing by 8.60% in 2020. Vanguard’s Canadian Short-Term Bond Index ETF (VSB) didn’t fare much better, posting a -1.05% return last year after a 5.14% gain in 2020.

The Vanguard U.S. Aggregate Bond Index ETF (VBU) was down -2.07% in 2021 after posting a positive 7.24% return in 2020. And, the Vanguard Global ex-U.S. Aggregate Bond Index ETF (VBG) was down -3.04% in 2021 after posting a positive 3.85% return in 2020.

Vanguard Asset Allocation ETF Returns 2021

Some investors, like me, prefer to bundle all of these investments into one globally diversified and automatically rebalancing ETF – called an asset allocation ETF. Here are the results for Vanguard’s asset allocation ETFs:

ETF Stock/Bond 2021 2020
VEQT  100/0 19.59% 11.29%
VGRO 80/20 14.90% 10.89%
VBAL 60/40 10.27% 10.24%
VRIF 50/50 7.56% n/a
VCNS 40/60 5.77% 9.41%
VCIP 20/80 1.46% 8.43%

Remember, these asset allocation ETFs are actually bundles of 4-7 individual ETFs. VEQT is comprised of the following four ETFs:

  • VUN – 43.7% weight 
  • VCN – 29.8% weight 
  • VIU – 19.2% weight 
  • VEE – 7.3% weight

The other asset allocation ETFs include the four ETFs above, plus three individual bond ETFs (VAB, VBU, and VBG).

I believe there’s a behavioural advantage to holding the bundled-up version of these ETFs. Why? Because if we see the individual parts (and their daily returns) we might be tempted to tinker with our portfolio. Indeed, why hold emerging markets (VEE) when the returns have been so poor compared to North American stocks? 

Related: Top ETFs and Model Portfolios for Canadian Investors

But there’s a saying that your portfolio is like a bar of soap – the more you touch it, the smaller it gets. 

Canadian stocks have had a dismal run compared to U.S. stocks over the last decade. I don’t know of any investor who wanted to hold more Canadian stocks. In fact, one of the biggest complaints I get about VEQT is its ~30% weighting to Canadian equities.

But, as 2021 showed us, we simply don’t know which markets will outperform in the future. Last year’s losers routinely become next year’s winners (and vice versa). That’s why it’s sensible to hold a globally diversified portfolio, to capture all global stock returns rather than concentrating in any one country or region.

At this time last year, many investors wanted to ditch Canadian stocks and go all-in on the S&P 500. Some wanted to shift out of the S&P 500 and go all-in on the NASDAQ 100. A select few wanted to dump the NASDAQ in favour of Cathie Wood’s ARKK. That one didn’t work out so well…

This is classic performance chasing. The problem is, past performance is not indicative of future returns. 

Sometimes I think ETF investors need to take a page out of the value investor playbook. Instead of loading up on what has done extraordinarily well last year, value investors counterintuitively look for stocks that have performed poorly in the past. That’s because they’re after future returns, not past performance. And stocks trading at attractive valuations tend to have higher expected future returns.

With that in mind, which investment do you think should have higher expected future returns? The all-time high S&P 500 ETF, or the (relatively) poor performing emerging markets ETF?

Now, I’m not suggesting that investors put all of their money into emerging markets. But they certainly shouldn’t deliberately avoid emerging markets because of the recent underperformance. 

My 2021 Investment Returns

I invest 100% of my money in Vanguard’s All Equity ETF (VEQT). It stands to reason that I should have achieved a 19.59% return across all of my accounts. But investment returns don’t work that way. We need to account for any contributions and/or withdrawals, as well as the timing of those cash flows throughout the year.

Here are my 2021 investment returns:

  • RRSP – 19.68%
  • TFSA – 19.32%
  • LIRA – 19.59% (this aligns exactly with VEQT’s return because there were no contributions or withdrawals)
  • Corporate – 20.88%
  • RESP – 21.25% (my kids’ RESP is invested in TD e-Series funds)

It’s interesting that for all of the fussing index investors do over which portfolio to choose (Vanguard, iShares, BMO, TD, Horizons, etc), the TD e-Series funds have held up remarkably well compared to a similar all-equity ETF portfolio.

That’s why, for me, it doesn’t really matter which product you choose. Select an appropriate asset mix that you can stick to for the long-term and then find a product that matches what you’re looking for. Don’t lose sleep over 5 basis points of cost (0.05% MER), or an extra 5% allocation to Canadian stocks. 

Final Thoughts

2021 was another fantastic year for investment returns. Canadian stocks led the way with a 28.50% return, while U.S. stocks closely trailed at 27.90%. A globally diversified all-stock portfolio returned 19.59% (dragged down by international and emerging market stocks). These are eye-popping numbers.

The long-term annual average stock returns are closer to 8-10%, depending on which country’s stock market you follow. But because the past decade’s stock returns have been so high, it makes sense to lower our expectations for future annual returns to the 6% range.

This is not to rain on anyone’s investing parade. But I fear that many investors have come to believe double-digit investment returns are a given, and that moving money into hot performing sectors or countries is a guaranteed recipe for success. 

That warning doesn’t mean markets are going to crash anytime soon. Stocks can continue to climb, crash, or go sideways for many years. No one knows. 

The point is, if you’re a balanced or conservative investor who’s feeling a bit of FOMO and wanting to increase your equity allocation to chase returns, think again. Remember why you set up your portfolio in the first place. It was to maximize returns, given the amount of risk you are willing to take. 

How did your investments perform in 2021? Did you make any changes to your portfolio? Let me know in the comments.

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30 Comments

  1. Dan on January 1, 2022 at 5:47 pm

    It still baffles me why any portion of your retirement portfolio is in bonds
    You might as well stick the money in a checking account or under your mattress

    • Kevin on January 1, 2022 at 6:03 pm

      When the market drops 20% and you are 64 it’s your retirement at stake, you will (hopefully)understand

    • Robb Engen on January 1, 2022 at 10:51 pm

      Hi Dan, I don’t hold any bonds but I’m 42 years old and still have a few decades before I need to draw from this portfolio.

      Bonds do provide a source of return and more importantly tend to hold their value when stocks crash, allowing investors to rebalance. Of course, bonds also reduce the volatility in your portfolio. Some investors, most I’d say, are not comfortable with -30% to +30% swings in value.

    • Grant on January 2, 2022 at 12:54 pm

      Dan, the purpose of bonds in a portfolio is to reduce the volatility so you don’t panic sell in a crash. They are not for returns. You hold stocks for that. So if you don’t need to reduce the volatility of your portfolio (which most people do to some extent) you don’t need bonds. Put another way, bonds are a hedge against the permanent loss of capital that occurs during panic selling in a crash.

  2. Alice Lawless on January 1, 2022 at 5:55 pm

    Hello,
    I’m curious what you invest in, in your Corporate Account?
    Thank you, Alice

    • Dan on January 1, 2022 at 6:18 pm

      Hi Alice and Happy New year
      I am 65 retired for 5 years
      I use on line brokerage firm Questrade
      My portfolio is very simple I invest in 9 Canadian dividend stocks and 5 Cdn REITS
      No bonds
      I have been through 2 large downturns and the dividends keep rolling in.
      I do have Vermilion- bought in late 2019 for the dividend. This one hurt a little
      But is now on the rebound, I did dismiss the pros on this one- I did by Vermilion for the dividends

      • Alice Lawless on January 1, 2022 at 8:27 pm

        Thank you Dan. Do you find there is extra red tape when you have a Corporate investment account? I’m not nervous about my personal self directed registered and unregistered accounts but where the Corporation is concerned I’m hesitant. I guess I just need to jump in and set it up. Happy New Year.

        • Dan on January 1, 2022 at 8:35 pm

          No corporate account, only DYI retirement account

        • Robb Engen on January 1, 2022 at 10:42 pm

          Hi Alice, I invest in VEQT inside my corporate investment account. It’s a taxable account, similar to your personal non-registered account. Investment income earned inside the account is taxable to the corporation. Keep it simple and keep good records of your contributions and investment income. Otherwise, there’s not much else to it.

          • John A. on January 3, 2022 at 1:33 pm

            True, other than legal costs to incorporate, the annual Corporations Canada filing, keeping Director’s minutes and other corp documents updated, the annual T3 (corp tax) return and those pesky passive income calculations. 🙂



  3. John on January 1, 2022 at 6:09 pm

    Further to your segment on bonds. Is it true, Robb, that data for annual bond returns, such as the ones above, do not include the interest paid?

    • Robb Engen on January 1, 2022 at 10:54 pm

      Hi John, the bond returns quoted are total returns – price and interest payments. You can see this directly on Vanguard’s website.

  4. Gisele on January 1, 2022 at 6:19 pm

    I really enjoy reading your info and although your column is entitled Boomerandecho, I find that the discussion is not much for Boomers who are about to retire or have retired.
    Can we have more info related to that age group?
    Thank you
    Gisèle

    • Jim R on January 1, 2022 at 6:46 pm

      I’ll second that – especially anything about decumulation. The accumulation phase is easy: earn money, throw some of that money into index ETFs (either an all-in-one, or individual ETFs with an eye to maintaining asset allocation).
      The decumulation is not so easy: how much do I withdraw? do I withdraw less in a year the market has gone down? how do I divide my withdrawal among my RRSP, TFSA, and non-registered accounts? do I take into account the possibility of capital gains taxes going up? etc.

      • Bill W on January 1, 2022 at 8:17 pm

        Jim, we had those questions too starting about 3 years before retirement. See Robb’s section on his site about fee for service advice. Set up a initial consultation and then decide if you want to go further with it. If you do you will get back all the information you need to answer your questions above. We have no guess work now. We feel it is totally worth what we paid for the reports.

        • Robb Engen on January 1, 2022 at 11:13 pm

          Hi Bill, thanks so much for the kind words. You’re exactly right, if you’re wrestling with the big burning questions leading up to retirement (when to retire, how much to spend, how long will it last), it makes sense to reach out to an unbiased planner for a retirement plan.

          And, just confirming I did not ask, persuade, or pay Bill to write that comment 😉

      • Robb Engen on January 1, 2022 at 11:08 pm

        Hi Jim, there’s a reason why the decumulation stage of retirement is called the “nastiest, hardest problem in finance.”

        While there are some general rules and guidelines that can broadly apply to retirees, the reality is that most situations are unique to the individual retiree and their goals.

        That said, I have written many articles on retirement that you may find helpful. Check out the links I shared with Gisele.

      • Lisa S on January 2, 2022 at 2:34 pm

        I agree Jim R, decumulation is challenging. The current updated version of Fredrick Vitesse’s “Retirement Income for Life” 2020 edition Is very helpful! It addresses many of your questions and is Canadian.

        As some others have mentioned Bonds are not optimal at this point in my opinion. Even though I am newly retired, I am 100% equities. I have money available in case of a downturn as well as dividends if necessary. Bonds are negative right now and will continue to be that way for awhile I think. I am prepared mentally for downturns and will not sell as a result of a market loss. Plan to hold bonds in the future but not in current conditions.

    • Robb Engen on January 1, 2022 at 11:01 pm

      Hi Gisele, thanks for your comment. I agree, as a 40-something I do write a lot about my own experience with investing and retirement planning, which is different than someone who is closer to retirement.

      That said, there are more than 1,600 articles published on this blog. Feel free to peruse the ‘retirement’ category for more articles related to that age and stage: https://boomerandecho.com/retirement

      You’ll find articles on investing in retirement, decumulation, when to take CPP and OAS, when to convert your RRSP to a RRIF, along with legacy planning and retirement lifestyle design.

      Here are a couple of other articles you may enjoy:

      https://boomerandecho.com/addressing-major-gaps-in-your-retirement-plan/
      https://boomerandecho.com/how-to-think-about-retirement-planning/

      • Gisèle on January 2, 2022 at 6:15 am

        Thank you for pointing me in that direction Robb. All the best in 2022!
        Gisèle

  5. David on January 1, 2022 at 7:26 pm

    Hi Robb,

    Can you comment on your strategy to go with 100% equities? Do you plan to keep that weighting long-term or eventually add a percentage of bonds? Is there a specific reason you don’t apply the 90/10 strategy that Buffet promotes?

    Thanks!

    David

    • Robb Engen on January 1, 2022 at 11:28 pm

      Hi David, I’m looking to maximize my long-term returns with a simple all-equity ETF. An all-equity portfolio, while certainly riskier in the short-term, is a near lock to outperform other asset classes over the very long term.

      I’m not sure when I’ll reduce my equity exposure, but likely when I stop working and begin withdrawals from my RRSP and LIRA. I’ll probably keep the TFSA at 100% equity, though.

      Buffett’s 90/10 plan sounds sensible for his beneficiaries. I’d personally prefer global stocks rather than just the S&P 500, but Buffett is famously bullish on America. I think he also recognizes that most investors should not be in 100% stocks…

  6. David S on January 2, 2022 at 12:47 am

    Congratulations Robb on your continued success in 2021. I took early retirement in 2020 at age 59 and the pandemic has resulted in me taking a cautious approach with my investments. I set aside enough cash in HISA and GIC’s to cover 2+ years of expenses. My net worth (excluding house) only grew by 3% in 2020 (some stocks hit hard by the pandemic) but jumped 18% in 2021. Inflation is my main worry now. I’d prefer to stay conservative but will need to reconsider my strategy for 2022 to keep ahead of inflation..

  7. Denis on January 2, 2022 at 6:54 am

    I passed retired 10 years in 2021 and it has been a wonderful retirement in spite of the last 2 years. I was fortunate to retire at market bottom and at a young 54 yrs old. Surprisingly 2021 also brought on a heart attack which was a surprise as I am very active in sports and etc. I am also doing very well.

    Now that event (lucky to be alive) made me think that my daughter would inherit a mess of accounts, of stock options, and most of all, a huge tax bill (from large RRSP and LIRA). My thinking now is that I should convert my LIRA to RRSP and LIF, so that I start getting that out AND I delay QPP and OAS payments to 71.

    Also 2021 HAS been a fantastic year for returns and I have always been 100% stocks but will CSP and CC where merited (for juiced up dividend ROI, safety and what is allowed in all these accounts).

    Happy New Year to all, 2021 was an especially great year for me.

  8. Carmen on January 2, 2022 at 10:30 am

    Finally took the plunge in December into on line investing… just opened my non registered account. Easy peasy. VEQT was a snap to purchase. And I love being able to buy without hefty brokerage commissions.
    Thanks for the great advice .

  9. Alice Lawless on January 2, 2022 at 12:07 pm

    Hi Robb,
    What do you invest in, in your corporate account?
    Thank you

  10. Grant on January 2, 2022 at 1:13 pm

    Robb, Happy New Year! As usual I didn’t make any changes to my 60/40 portfolio. It’s interesting to see that, once again, the 60/40 portfolio that has been declared “dead” by the pundits every year for at least a decade, has once again given double digit returns.

    • Robb Engen on January 2, 2022 at 1:25 pm

      Hi Grant, happy New Year! Yes, the 60/40 portfolio shines again.

    • Rob on January 3, 2022 at 11:01 am

      But what was the true rate of inflation…

      It’s the after inflation increase that counts.

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