Investment Returns for 2023
Stock markets rebounded in a big way last year after a taking it on the chin in 2022. It was technology stocks once again leading the way – with the NASDAQ gaining 52.28% (XQQ) in 2023. The vaunted S&P 500 also posted an impressive 24.39% gain in 2023 after falling nearly 20% in 2022 (XSP). Even Canadian equities had a solid year, gaining 11.67% in 2023 (XIC).
Across the pond, international stocks soared 14.35% (XEF), while emerging market stocks were up just 6.18% (VEE).
On the fixed income side, Canadian aggregate bonds (VAB) were up 6.58% in 2023 after getting walloped by nearly 12% in 2022, while short-term bonds (VSB) were up 4.95% in 2023 after losing nearly 4% in 2022.
Regular readers know that I’m a huge proponent of asset allocation ETFs as a sensible way for many Canadians to invest. For around 20 basis points (0.20%) in fees, you get a globally diversified and automatically rebalancing portfolio that you can set and forget.
Indeed, if investing has largely been solved with low cost index funds, then investing complexity has been solved with these asset allocation funds. A true one-stop shop for your investing needs.
Investing passively through index funds allows investors to capture the aforementioned returns, minus a very small fee. That’s a surefire way to beat 90% of investors who invest more actively, incur higher fees and are prone to behavioural issues like performance chasing.
With that in mind, here are the 2023 investment returns for various asset allocation ETFs offered by Vanguard and iShares:
Vanguard Asset Allocation ETFs
Vanguard offers a suite of asset allocation ETFs ranging from 100% global equities (VEQT) to 20% equities and 80% bonds (VCIP). I’m including the five-year returns of VEQT, VGRO, VBAL, and VCNS to show their most popular asset allocation ETFs:
| ETF | 2023 | 2022 | 2021 | 2020 | 2019 |
|---|---|---|---|---|---|
| VEQT (100/0) | 16.95% | -10.92% | 19.66% | 11.25% | n/a |
| VGRO (80/20) | 14.86% | -11.21% | 14.97% | 10.83% | 17.66% |
| VBAL (60/40) | 12.69% | -11.45% | 10.29% | 10.20% | 14.81% |
| VCNS (40/60) | 10.55% | -11.78% | 5.80% | 9.36% | 12.06% |
Interestingly, each step up the risk ladder earned you an extra return of 2% or so. Even the traditionally conservative 40/60 portfolio posted double-digit gains thanks to a strong stock AND bond performance in 2023.
iShares Asset Allocation ETFs
iShares offers a similar suite of asset allocation ETFs with ticker symbols of XEQT, XGRO, XBAL, and XCNS. The differences between iShares and Vanguard are slight – iShares’ ETFs cost just 0.20% MER compared to Vanguard’s 0.24% MER, and iShares’ asset allocation ETFs come with a bit more US and International equity, while Vanguard’s asset allocation ETFs have more Canadian and emerging market representation.
Here are the five-year returns for iShares’ asset allocation ETFs:
| ETF | 2023 | 2022 | 2021 | 2020 | 2019 |
|---|---|---|---|---|---|
| XEQT (100/0) | 17.05% | -10.93% | 19.57% | 11.71% | n/a |
| XGRO (80/20) | 14.92% | -11.00% | 15.17% | 11.42% | 17.96% |
| XBAL (60/40) | 12.78% | -11.08% | 11.06% | 10.58% | 15.19% |
| XCNS (40/60) | 10.56% | -11.19% | 6.57% | 10.33% | n/a |
You can the returns are nearly identical. iShares has a slight performance edge due to its tilt towards the higher performing US and international markets.
If you can’t decide between the two, hedge your bets by putting a Vanguard asset allocation ETF in one account type, and an iShares asset allocation ETF in another (or one spouse picks Vanguard and one spouse picks iShares). Whatever you do, don’t drive yourself crazy switching back and forth between the two chasing past performance.
My Investment Returns for 2023
I’ve been investing in Vanguard’s all-equity ETF (VEQT) since March 2019. It’s a perfect solution for someone like me who wants to buy the entire market for as cheap as possible and move on with my life.
I hold VEQT inside my RRSP, LIRA, and corporate investing account. I did not make a contribution to my RRSP (or LIRA, of course) in 2023, but I did actively contribute to the corporate investing account.
As you know, the timing (and amount) of your own contributions will affect your own personal rate of return. So, while I expect my RRSP and LIRA to have a nearly identical return to VEQT’s 2023 calendar year return of 16.95%, the returns on the corporate account may be different due to the timing of contributions. Let’s check it out:
- RRSP = 16.88%
- LIRA = 16.63%
- Corporate = 18.65%
The difference between the RRSP and LIRA returns could only be chalked up to the timing of reinvesting the annual dividend. I don’t believe I had automatic dividend reinvestment turns on in either account and may have not have reinvested the dividends on the same date.
I used TD’s e-Series funds in our kids’ RESP account. While I had maintained a 100% equity portfolio using the Canadian (1/3), US (1/3), and International (1/3) funds, last year I added the bond fund for the first time and did not contribute to the equity funds. Still, $6,000 worth of bond buying ($5,000 in contributions + $1,000 CESG) did not have a significant drag on investment returns:
- RESP = 16.22%
That said, a bigger change is on the horizon because I just transitioned their RESP portfolio to follow the Justin Bender RESP strategy to de-risk the portfolio and keep better track of their share:
Finally reorganized my kids’ family RESP to better track their share of the pie. Had to legally change their names to Vanguard and iShares (sorry!): pic.twitter.com/EkqJ6cTMQy
— Boomer and Echo (@BoomerandEcho) January 4, 2024
Final Thoughts on 2023 Investment Returns
Most Canadians still invest in actively managed mutual funds through their bank or another investment firm. These funds have a huge hurdle to overcome – their high fees – to match (let alone beat) a passively managed portfolio of index funds.
Your job this month is to pull up your investment statement and look at last year’s returns, along with the returns over the past five years, and see if your portfolio is keeping pace with the returns of an asset allocation ETF.
Make sure you’re comparing apples-to-apples, that is you’re matching up your portfolio’s asset allocation with the returns from a similar asset allocation ETF (i.e. 60/40 to 60/40) to get the full story. No sense comparing your 60/40 portfolio to the NASDAQ 100. It likely wouldn’t be appropriate to invest in 100% tech stocks.
If you’ve reviewed your investment statement and find your returns aren’t measuring up, it might be worth switching to a self-directed investing platform and buying a risk appropriate asset allocation ETF.
- I can help – DIY Investing Made Easy
I truly believe that pairing low cost index investing with on-demand financial planning advice at key life stages can lead to successful outcomes for many Canadians. Put that on your New Year’s resolution list for 2024.
where are you getting your return information from? I don’t see VEQT earning that return in 2023.
Hi Luke, from the total returns posted on their website for 2023: https://www.vanguard.ca/en/advisor/products/products-group/etfs/VEQT
Remember to include dividends and not just price appreciation.
For total returns, do you include reinvestment of the dividends. If reinvestment is included, are they reinvested on the day of receipt?
Yes and yes.
Thanks for the article Robb. Similar to Luke’s question, I typically track ETF performance through Google Finance. I’m now noticing the stark difference between that (price appreciation) and full return. For XIC, Google Finance shows 7% vs. Blackrock website showing 11.7%. Dividend yield is ~2%; do you know what is making up the other ~2.5% gap?
Thanks!
Hi David, the total returns posted on iShares’ website would assume the dividends are immediately reinvested. So not just the capital appreciation plus the dividend in isolation.
And you need to also look at the 12-month trailing yield, not the current yield, for gauging 2023’s returns. The trailing yield was 2.98%, so quite a bit higher than it is now.
Thanks for the explanation Robb!
I’m retired, and lucky enough to have a pension with partial indexing. I consider that the fixed income side of my investments. With remaining funds, I would like to invest in a monthly dividend ETF which is 100% global stocks. Any suggestions?
I too like VEQT for easy low cost investing. I am curious – what fund do you use for your TFSA ?
For your return numbers, are you using the percentages from your brokerage statements or calculating them yourself? If the latter, are these time weighted or money weighted returns? I’ve calculated TWRRs for my own accounts and they seem close to the expected fund returns. Your explanation of the slight differences with your numbers makes sense, thank you!
Hi Robb,
I’ve been reading your articles for a couple of years now. I manage my TFSA, which I opened in late 2020 and maxed out after retiring, putting 62% in VEQT, 2 stocks in oil, 1 gas and the other ATD. I’ve done quite well.
I am 69, have a OMERS pension as well as a substantial amount of money in their AVCs which, when I retired, I transferred from a wealth management firm to OMERS because of their lesser fees and decent returns at that time. I am now disappointed in OMERS’ AVC returns of -2.4% (2020), 15 (2021), 4.2 (2022) and 4.6 for 2023 and I’m thinking of pulling them out and managing my RRSP using VEQT and VBAL. I am waiting to take CPP and a reduced OAS at 70. I also am mortgage free, no debt and own three properties. Any thoughts on OMERS AVCs?