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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15 Comments

  1. Carol on January 9, 2017 at 7:23 am

    Sorry if this is a nitwit question, but i’m not all that knowledgeable about these things. What figure do I use to compare my rate of return for 2016 to the figures you quote in this article. I am with wealthsimple and their charts show time-weighted, money-weighted and simple. thanks

    • Echo on January 9, 2017 at 10:04 pm

      Hi Carol, not a nitwit question at all! I haven’t seen a Wealthsimple performance report before but it’s great that they provide the various rates of return.

      A time-weighted rate of return assumes no money has been added or withdrawn from the portfolio. It’s how a mutual fund or ETF would report its annual returns.

      An investor who is adding new money to his or her portfolio will want to use a money-weighted rate of return, which takes into account how your contributions impact your overall portfolio return.

      Both methods have some shortcomings, however, which is why in the link I provided at the end of this article Justin Bender at PWL Capital recommends using the Modified Dietz Method. You can download the calculator and, as long as you have your portfolio start and end values, as well as the amount and date of each new contribution, you can come up with a much more accurate personal rate of return.

      • Carol on January 10, 2017 at 8:58 am

        Thanks for this. I downloaded the chart and input all the month-end Portfolio Values. Do I have to also input all the deposits and withdrawals or can I just use net investment change?

        • Echo on January 16, 2017 at 9:15 pm

          Hi Carol, you’ll want to include all the deposits and the dates in which they were added to your portfolio. There’s space to add all of the in-flows, for example: $400 on March 7th.

  2. AndrewGR on January 9, 2017 at 7:40 am

    Both formal TWRR and MWRR calculations involve lots of details for each transaction that occurs in ones portfolio. Instead I’ve implemented Justin Bender’s “Estimated Money Weighed rate of return” and equivalent the “Approximate Time Weighted Rate of Return” as automated calculations in my Excel document that tracks my portfolio. So whenever I update my excel document with my current holdings, both rates are dynamically captured. That being said, the 2 rates do vary, so my portfolio based on Garth Turner’s allocations his company uses (as disclosed on his blog) came in this year at: E-MWRR 7.61% and A-TWRR 6.63%.

    • Echo on January 9, 2017 at 10:09 pm

      Hi Andrew, yes – Justin’s calculators are excellent and easy to implement. Have you tried the Modified Dietz Method I described in the comment above?

  3. Chris on January 9, 2017 at 2:46 pm

    Hi Robb,

    Have you had any troubles with the E-Series trades rejecting because they don’t meet your investor profile?

    I’ve had plenty of trade requests cancelled recently because I have been running the asset allocation a little riskier than usual. My Daughters’s RESP has been going at roughly 80% equities, 20% fixed income since I started it. Recently I’ve gone with 15% fixed income – 85% equities and the trades started getting rejected. Very aggravating!

    • Echo on January 9, 2017 at 10:12 pm

      Hi Chris, do you hold e-Series funds in a regular TD mutual fund account or in a discount brokerage account (TD Direct)? I’ve had no issues on the TD Direct side, but I’ve heard from investors on the TD mutual fund side who’ve encountered the same problem that you’ve described.

      With TD Direct, the only activity they’d likely flag is if I wanted to start trading options or using a margin account. I’m 100% equities, otherwise, and no issues.

      • Chris on January 9, 2017 at 11:43 pm

        Yes, regular TD Mutual fund account. I never thought about the TD Direct option. I wonder if I can change (easily)? I had to call them to figure out what the problem was (45 min on hold) and I was beside myself!

  4. Gert on January 9, 2017 at 5:57 pm

    From what I posted on another page my 2016 gains have been reported to me as being about 4% and it’s been suggested to me 2017 isn’t going to be much better. I’m of course concerned by this and wonder what I should be doing.
    I see my mix is as follows;
    Non-Reg: 70% Fixed; 30% Equity (all CAN)
    TFSA: 26% Fixed; 74% Equity (all CAN)
    RRSP: 2% Cash; 32% Fixed; 66% Equity (70% CAN; 30% USA)
    If I’m looking for growth I’m guessing I need to be higher in equity? Any advice is welcome

    • Echo on January 9, 2017 at 10:20 pm

      Hi Gert, thanks for your comment. No one knows what 2017 will bring, so I’d ignore anyone who has a gloomy (or euphoric) market forecast. It sounds like you need a financial plan and from that an asset allocation that matches your age and risk tolerance.

      Was the 4% return from your RRSP, your TFSA, or your Non-registered account (or all of the above)? Without knowing all of your financial details it’s impossible to comment on whether or not that portfolio is suitable for you as an investor.

      • Gert on January 10, 2017 at 5:43 am

        Hi,
        Thanks for the reply. From what I see the 4% represents all. I’ve requested a copy of the report. My RRSP is topped and for the TFSA I’ve contributed the full amount every Jan. 1st since it started. Total in that fund is about 57K now. Mind you for that account I only started investing 2 years or so ago.
        I’d consider my risk tolorence as average.
        I’ve been considering getting some advice from another source but to be honest I’m not sure who to turn to. Right now I’m dealing with bank investment and going to another bank seems, well, more of the same I might imagine. I’m open to suggestions.

  5. Al on January 10, 2017 at 5:47 pm

    What was used to make the graphs that depict the monthly progress? I have an excel spreadsheet to do the calculations but it doesn’t look nearly as nice as the Charts in your post. Looks awesome!

    • David Stott on January 15, 2017 at 4:32 pm

      Hi Echo,

      Same question- what app do you use to track your investments? The graphs look great.

      Thanks,

      DS

      • Echo on January 16, 2017 at 9:17 pm

        Hi Al & David, I wish I could take credit for the graph but that was taken right from my TD Direct brokerage account. They revamped their platform last year and it’s pretty slick.

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