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:

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:

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.

This year turned out to be a great one, both financially and for our lifestyle. We got everything we wanted out of our new house. We love having a dedicated office space and a home gym. Our kids can easily walk to school. Our dog even has a huge field in which to run around and play.

We managed to upgrade our house without sacrificing much. Sure, our mortgage balance has tripled and we emptied our TFSAs. But our net worth continues to grow – we’re still pushing the needle forward and not going backwards.

More importantly, from a lifestyle perspective, we’re able to enjoy the same standard of living we’ve grown accustomed to over the past few years. That includes frequent and extensive travel whenever (and wherever) possible.

Our business had a record year for income, surpassing our wildest expectations. That allowed us to give ourselves a much deserved raise so we could meet our personal spending and savings goals, AND still invest significantly inside our corporate investment account.

We seriously have to pinch ourselves sometimes knowing this is our life now. We’re incredibly lucky and grateful.

This year also brought back the bull market and our globally diversified portfolios were up about 16% after a brutal 2022. We’ll need that to continue if we want a realistic shot at reaching our goal of a $2M net worth by the end of 2025. More likely, that won’t happen until the end of 2026 or sometime in 2027 – and that’s perfectly fine.

We’re looking forward to another good year in 2024. As I’ve previously written, we only have five financial goals next year:

1. Give ourselves a 10% pay raise (dividends)
2. Reorganize the kids’ RESP (including a catch-up contribution for our oldest child)
3. Revenge travel part two (Mexico in February, Europe in July, and Scotland in the fall)
4. Invest excess profits in corporate account (targeting $90k)
5. Renew our mortgage in May (likely taking a variable considering the market is now pricing in 5 rate cuts in 2024)

With that out of the way, here’s how our net worth looks at the end of 2023:

Now let’s answer a few questions about the way I calculate our net worth:

Credit Cards, Banking, and Investments

We funnel all of our purchases onto a few different rewards credit cards to earn points on our everyday spending.

Our go-to card is the American Express Cobalt Card, which we use for groceries, dining, and gas. We also look for the best credit card sign-up bonuses and time our large annual spending (car and house insurance) around these offers. One I’m using currently is the American Express Aeroplan Reserve Card.

Our joint chequing account is held at TD, along with our mortgage and kids’ RESPs. My wife has her own chequing and savings accounts at Tangerine. 

My RRSP is held at the zero-commission trading platform Wealthsimple Trade. My LIRA is held at TD Direct, and the corporate investment account is held at Questrade. My wife’s investments are held at Wealthsimple. You know all of this from my post about how I invest my own money.

RRSP / LIRA / RESP

The right way to calculate net worth is to use the same formula consistently over time to help track and achieve your financial goals.

My preferred method is to list the current value of my RRSP, LIRA, and RESP plans rather than discounting their future value to account for taxes and distributions.

I consider a net worth statement to be a snapshot of your current financial picture, so when it comes time to draw from my RRSP/LIRA and distribute the RESP to my kids, my net worth will decrease accordingly.

Principal Residence

We bought our home this year for $976,000, so that’s the price I’m using for our net worth calculation. I typically adjust the purchase price by inflation each year but I’ll likely keep listing it at the purchase price for a few years.

Astute readers will notice that the price of our previous home went from $459,000 to $555,000 from 2021 to 2022. That ended up being the sale price, so you can see that I was pretty conservative with the house value over the years.

Final thoughts and a look to 2024

Again, I want to acknowledge the tremendous privilege of being able to work from home and prosper during such a tumultuous period (pandemic, economic uncertainty, geopolitical conflicts, high inflation, housing crisis). My wife and I are incredibly grateful for everything we have.

We’re also consciously planning our so-called “rich life”, wanting to maximize our life enjoyment rather than just counting numbers going up on a spreadsheet (and, yes, I see the irony of that comment on a net worth update post). Live for today while still planning for tomorrow.

The pandemic took two years of travel away from us. My wife’s relapse last year almost cost us another year. We don’t take anything for granted.

Thanks to all of you who take the time to read the blog, comment, and send me emails. I appreciate it more than you know.

How did your finances fare in 2023? Let me know in the comments below.

Last year was one of the worst ever for a 60/40 balanced portfolio. Stocks and bonds were both down double digits and investors were understandably nervous about an impending recession.

I can’t tell you how many conversations I had with clients who wanted to abandon their perfectly sensible portfolios in favour of GICs paying 4-5%. The rationale? I can’t take any more losses and want to sit out for the next 6-12 months until things blow over or get back to normal.

The problem is there is no normal. Stocks and bonds are risky assets that move unpredictably in the short-term based on the collective market’s best guesses about the future.

Put another way, if everyone thinks there will be a recession next year then that risk is already priced-in to stocks and bonds now. 

Fast forward a year and stocks have had a surprising rally and reached all-time high levels. Once again I’m having conversations with clients who want to abandon their perfectly sensible portfolios in favour of GICs paying 5%. The rationale? Stocks are at an all-time high and I want to sit out the next 6-12 months in case there’s a market crash.

YTD returns from a globally diversified portfolio:

VBAL / XBAL: 9.23% / 9.46%
VGRO / XGRO: 11.40% / 11.63%
VEQT / XEQT: 13.49% / 13.77%

Just like everyone predicted this time last year.

— Boomer and Echo (@BoomerandEcho) December 5, 2023

Conversely, many chats with clients in 2021 made it seem like a portfolio of 100% global stocks (VEQT) was as boring as a 5-year GIC. They wanted high flying stocks, crypto, and thematic ETFs.

Investing should be incredibly easy. Buy the entire market with a risk appropriate asset allocation ETF and move on with your life.

And if we were all emotionless robots that would work out just fine. We’d understand that markets go up and down based on events outside of our control, but mostly trend up over the long-term and lead to successful outcomes if we stay the course.

But we’re not emotionless robots. We’re human and susceptible to emotions like fear and greed. It’s like we’re wired NOT to stay in our seats – like we need to take control and do something to side-step losses and capture higher returns.

Resist the urge to do something you may end up regretting next year. Understand that stocks and bonds are rallying because “the market” expects inflation will continue to cool, interest rates will fall, and the economy will avoid a major recession (the so-called soft landing).

But that consensus can change on a dime with a surprise inflation surge, massive layoffs, escalating global conflict, or something we’ve never experienced before.

Stocks and bonds reward us for staying the course through all of this uncertainty. That’s how investing works. 

Bottom line: Your investing strategy shouldn’t change based on current market conditions.

Promo of the Week:

Looking for a last minute gift for an avid reader? Here are two solid books I’ve recently read:

Same as Ever: A Guide to What Never Changes – the latest by Morgan Housel.

Going Infinite: The Rise and Fall of a New Tycoon – the latest by Michael Lewis.

Weekend Reading:

I was thrilled to join Shaun Maslyk on The Most Hated F-Word podcast to share my money story (from frugal to freedom).

Why are people so mad at Michael Lewis? The embattled author stops by the Freakonomics podcast to set the record straight.

Overconfident much? Dr. Preet Banerjee explains why when it comes to investing knowledge, perception doesn’t match reality.

Speaking of overconfidence, PWL Capital’s Ben Felix looks at the cost of investing hubris:

Here’s A Wealth of Common Sense blogger Ben Carlson on overcoming a cash addiction in your portfolio.

Advice-only planner Anita Bruinsma offers a terrific reminder about the generous donation tax credit.

Dr. Preet Banerjee analyzed 10 of the biggest firms on Wall Street’s calls for the last 10 years and compared them to how the S&P 500 actually did. The results? Not good!

Millionaire Teacher Andrew Hallam on why the FIRE movement began and is still gaining steam.

The always brilliant Morgan Housel on the difference between frugal versus independent.

Ben Felix is back again, taking aim at those absurdly high yield products marketed today. He says, “distribution yields are not investment returns, they are not sufficient to assess expected returns, and, in the way that they are used to market financial products, often to unsophisticated investors, they can be misleading.”

Mortgage broker David Larock explains why cooling inflation data is good news for Canadian mortgage rates.

Finally, a funny look into Norway’s massive $1.4 trillion sovereign wealth fund and why it asked the Norwegian government for permission to invest in private equity – a request that has been repeatedly denied.

Have a great weekend, everyone!