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:

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.

Last year we reached the million-dollar net worth milestone. The goal itself wasn’t life changing, by any means, but it was something we had been striving to hit for nearly a decade – and it felt pretty damn good!

The truth is we have changed our lives for the better over the last two years. I quit my day job at the end of 2019 to focus on blogging, freelance writing, and my fee-only financial planning practice. 

My wife and I run a successful business that has wildly exceeded our expectations. Once we reached the $1M net worth mark we made two new goals. One, to try and reach $2M by the end of 2025. And, two, to adopt a Coast FIRE mentality where we no longer save aggressively for retirement. Instead, we’ll intentionally work less and spend more to increase our overall life satisfaction. (And, yes, we can achieve both!).

We’ll still max out our TFSAs each year, along with the kids’ RESPs. But no more RRSP contributions. On the corporate side of our ledger, we’ll try to limit our earnings so that we can pay ourselves just enough to meet our lifestyle needs. No more contributions towards our corporate investments.

The Coast FIRE approach means we can let our investments grow without actively contributing to them anymore. We’re not ‘retired’. We enjoy what we do. We just don’t need to work as hard or save as aggressively as we have been over the past 10 years. That means more time spent with our family, more time for active leisure, and more time for (and money spent on) travel.

We have been in a fortunate position throughout the pandemic. We work from home. We have a lot of interest in our fee-only financial planning service. I have two steady and reliable freelance writing clients. And, thanks to the loyal readers of this blog, we do receive a decent amount of revenue each month. 

The lack of travel and ability to do much of anything over the past 2 years meant accepting more clients and freelance assignments than I probably wanted to. It’s hard to say no when you have nothing better to do.

We’re hoping once we get to the other side of this Omicron wave that we can resume our plans to travel. That will force us to work less, and earn less revenue. The downside is we won’t be able to save as much, which will take some getting used to after 10+ years of trying to maximize our savings rate.

To give you some perspective, this year we contributed $70,000 to our corporate investments. That’s money earned over and above what we needed to pay ourselves and our business expenses. On the personal side of the ledger, we saved $55,000 and put that towards my TFSA, my wife’s TFSA, and our kids’ RESPs.

The stock market was on fire once again in 2021. The S&P 500 was up 29%, the TSX was up 21%, and my global equity holding (Vanguard’s VEQT) was up 22% for the year.

Our savings contributions and stock market performance contributed to another fantastic year in terms of net worth growth. Here’s how our net worth looks at the end of 2021:

Net worth update: 2021 year-end review

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 Scotia Momentum Visa Infinite Card, which we use for non-Costco groceries and gas. I’m also using the HSBC World Elite MasterCard, which came with an incredible 100,000 point welcome bonus. Finally, we look for the best credit card sign-up bonuses and time our large annual spending (car and house insurance) around these offers.

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. Our high interest savings account is held at EQ Bank, which pays 1.25% interest.

My RRSP and TFSA are 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 in 2011 for $424,000 and developed our basement a few years later, increasing its value to ~$450,000. The next year I bumped up the market value by 2% (which is still less than its city-assessed value), but the local real estate market has since flattened – with nothing selling in our price range – and so I’ve left the value at $459,000 for the past three years.

Final thoughts and a look to 2022

Again, I want to acknowledge the immense privilege of being able to work from home and prosper in the middle of a pandemic when so many people have lost so much. My wife and I are incredibly grateful for everything we have.

While I was excited to see our net worth grow by nearly $300,000 this year, I recognize that we cannot expect investments to continue to climb at 20%+ each year. We do need to temper expectations for future returns, which is why I only use a 6% nominal rate of return for future investment return projections.

That said, thanks to this year’s impressive performance we would only need our net worth to grow by about 12% per year for the next four years to reach our $2M milestone. That should be achievable, even as we dial back work and savings with our Coast FIRE approach.

I’ve already shared our financial goals for 2022. Aside from that, we just hope we can put the worst of the pandemic behind us next year and move on with our lives.

How did your finances fare in 2021? Let me know in the comments below.

Welcome to another edition of Weekend Reading. I continue to get dozens of emails from readers every week and I’m pleased to share some of those questions and answers with the broader community so we can all learn from each other.

Today, we’ll look at investing FOMO and regret, where to park your cash savings, and whether to buy or rent in Vancouver (or any expensive market). Let’s open up the money bag and take a look:

I regret being too conservative with my investments

From Donna:

Hi Robb,

I have two portfolios with Questwealth, one is TFSA worth $77,000 in a growth portfolio, and the other is an RRSP worth $275,000 in a balanced portfolio.

I changed the RRSPs to balanced but I regret that now when I see the growth of 12% in my TFSA and only growth of 6% in my balanced portfolio. Would it be too much of a knee-jerk reaction to change my RRSP back to a growth portfolio or should I just leave it? I retire in three years and will start using some of that money soon after.

Hi Donna, thanks for your email. What you’re describing is quite common in investing. We look back in hindsight and wish we would have done something different with our portfolio. But the stock market could have easily lost money in 2021, in which case you would have been happier with your RRSP balanced portfolio and regretted having the growth portfolio in your TFSA.

Classic “performance chasing” is when investors look at what performed well in the past year and change their portfolio to “chase” that performance. But we know that past performance is no guarantee of future performance. In fact, in many cases that hot stock or ETF that did well last year will perform poorly the next year.

To give you some perspective, a balanced portfolio of 60% stocks and 40% bonds would have an expected annual rate of return of about 4.6%, while a growth portfolio of 80% stocks and 20% bonds would have an expected rate of return of about 5.3%.

In both cases your portfolio outperformed expectations. You should be thrilled with that result – your investments did what they were supposed to do, and more!

Finally, I presume the reason your RRSP is in a more conservative (balanced) portfolio compared to your TFSA is because you expect to start withdrawing money from it soon after you’ve retired. It should be in a less aggressive portfolio because you have a shorter time frame.

Meanwhile, perhaps your TFSA won’t be touched for another 10 years or more and so it may have a longer runway to grow and compound. In this case, it’s reasonable to hold a more aggressive portfolio due to the longer time horizon.

Bottom line: Your investments surpassed expectations in 2021 and you should continue to stay the course rather than chase higher returns.

Where to park cash savings?

From Randy:

I’m aiming to keep 6-12 months worth of expenses in cash. Where should it be placed? Bank rates are abysmal, but I want to have quick access in case of an emergency. Any suggestions?

Hi Randy, you’re right that you need to look outside the big banks to find higher interest rates on your savings deposits.

The best place I’ve found is EQ Bank’s Savings Plus Account. It’s an online bank, but it has some chequing account functionality, meaning you can pay bills and send e-Transfers – all for free. Just link it with your main bank account and you’re good to go.

EQ Bank currently pays 1.25% interest, which is pretty close to the top of the market. Best of all, no promotional periods or teaser rates or anything. Just a (relatively) high everyday rate you can count on. Your deposits are also CDIC insured for up to $100k per account.

Buying or renting in Vancouver?

From Sean:

Hey Robb, I hope you are well!

I received an interesting question the other day and would be curious about your thoughts. The question was whether to buy or rent in the current Vancouver market. My response stemmed from your article about renting vs buying from last year. As I thought more about it, I wasn’t as sure if renting was the best. The other variable in the question was the renting now option with a possibility of buying at a future date (one to two years later) when income increased. Hopefully, there was some price compression (although I see this as speculative).

I recognize the strength in the Vancouver (and Toronto) market, and the other variables such as desirability play a role. Curious to know if you have any additional thoughts.

Hi Sean, thanks for your email. It’s tough to say what would be the better choice. A lot of housing bears have been proven wrong over the last 10-12 years in Canada (more specifically in Toronto and Vancouver).

If you’re looking for price predictions you’ve come to the wrong place. I have no idea where housing prices are headed. All I know is if you plan on living in Vancouver long term, and you can afford to buy a home and carry the mortgage costs (while still being able to live, and save for the future), then buying can be a sensible option.

I recently reviewed an excellent new book called The Rule of 30. It says you should aim to save 30% of your gross income, minus mortgage/rent payments, minus extraordinary short-term expenses like daycare. This lets young parents off the hook a bit when it comes to saving for retirement while they battle high mortgage costs and childcare.

I’d also recommend testing out this rent-buy calculator developed by long-time blogger John Robertson.

I’d value renting for lower costs but also flexibility if you think you might leave the city for a job opportunity (for example). Ultimately buying a house should be a lifestyle decision and not necessarily a financial decision.

This Week’s Recap:

I updated and re-posted this guide on TFSA contribution limits with the new annual limit for 2022.

For those looking for last minute stocking stuffers of the personal finance variety then look no further than these excellent books:

• The Rule of 30
• Reboot Your Portfolio
• Money Like You Mean It
• Die With Zero

On the fiction side I really enjoyed reading Andy Weir’s Project Hail Mary.

Promo of the Week:

Do it yourself index investors have a new (and free) resource to help them answer burning questions like how much to save, how much they can safely spend in retirement, and how well their portfolio will hold up using a range of historical outcomes. 

The project was created by engineer and DIY couch potato investor Kurt Friesen. Check out Index Goose to simulate your retirement portfolio with index ETFs.

I’ve ran several simulations myself and like the ability to customize your scenario based on how long you want the portfolio to last, a worst-case ending balance, annual increases to contributions or withdrawals, expected rates of return, and more.

This new tool even got a nice recommendation and mention from Canadian Couch Potato blogger and PWL Capital portfolio manager Dan Bortolotti:

Thanks for the mention, Dan!

Dan Bortolotti of the Canadian Couch Potato blog, and Portfolio Manager at PWL Capital, mentions Index Goose in PWL e-Newsletter: pic.twitter.com/XyxA1693BE

— Index Goose (@IndexGoose) December 18, 2021

Weekend Reading:

Our friends at Credit Card Genius explain the ins and outs of the Cineplex SCENE and Scotia Rewards merger, plus (of course) how to maximize the Scene+ program.

I was a guest on the latest Globe & Mail Stress Test podcast talking about investing trends as we head into 2022.

I was also invited to be a guest on the Financial Planning for Canadian Business Owners podcast with Jason Pereira where we discussed situations when DIY investors might seek the help of a fee-only or full-service advisor.

Of Dollars and Data blogger Nick Maggiulli shares his favourite investment writing from 2021. Some gems in there for sure.

Somewhat related to my answer about investing regret, Millionaire Teacher Andrew Hallam explains why the best funds of 2020 are sinking ships today.

Michael James on Money shares his thinking on what to do about crazy stock valuations from the perspective of a DIY investing retiree.

I enjoyed these musings from investment advisor Markus Muhs on financial advice for those aged 70 and beyond.

Finally, in an excerpt from her excellent book, Money Like You Mean It, Erica Alini explains how to ask for what you want when negotiating a new salary.

Have a great weekend, everyone!