Heard the argument that the economy will grow more slowly than in the past because of our aging population?
The same applies to your investment portfolio. The latest financial market return projections issued for financial planners to use in their work suggest investors of all types should rein in expectations on how their portfolios will perform over the long term (10 years and longer). Forget double digits, or even high single digits. Anything north of 5 per cent looks out of reach for most investors.
The return projections for 2019 were recently published by the FP Canada Standards Council and Institut québécois de planification financière. They’re meant to provide an analytical view on returns that is free from the bias of individual planners and investment advisers. You can find expected returns for the major asset classes in this recent post. Now let’s look at how these return expectations come together in portfolios designed for conservative, balanced and aggressive investors. Note: These are after-fee returns, with the fee set at 1.25 per cent.
- Conservative (5-per-cent cash, 70-per-cent bonds, 25-per-cent Canadian stocks): Average net annual returns of 3.16 per cent.
- Balanced (5-per-cent cash, 45-per-cent bonds, 40-per-cent Canadian stocks, 10-per-cent foreign developed market stocks): An annualized 3.74 per cent
- Aggressive (5-per-cent cash, 20-per-cent bonds, 35-per-cent Canadian stocks, 25-per-cent foreign developed market stocks, 15-per-cent emerging market stocks): 4.5 per cent annually.
It’s not only the returns for these three investor profiles that seem low. So are the fees. While some advisers may charge as little as 1.25 per cent of your account assets in fees, there are additional costs for investments. Even a low-cost portfolio of exchange-traded funds could add an additional 0.25 to 0.5 of a percentage point. In mutual funds, fees could easily exceed 2 per cent.
Sadly, this suggests that if the subdued projections for financial planners err at all, it’s on the optimistic side. How depressing.