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carrick on money

Regulatory changes have made it easier to see how your investment accounts are performing, but interpreting those results is still a problem that confuses many people.

I was reminded of this by a question from a reader of this newsletter. “What is a good target for a long-term annualized rate of return on RRSP investments? To elaborate, I am thinking of looking at how to evaluate investment performance over a 10-year period, neither too early in a career when you might be more aggressive nor too close to retirement when you want to lower-risk.”

A financial planner might answer this question by creating a plan for you that considers how much you’re able to save, how much you have already put away, your age and your projected retirement age, and your feelings about the risks of investing in stocks. The resulting financial plan would set a realistic average annual long-term rate of return you need to get where you want to go.

Without a plan like this, you’re best off using reasonable estimates of future stock and bond returns. A good source of this type of information is the Project Assumption Guidelines produced by the FP Canada Standards Council for financial planners to use in their work.

The guidelines include a long-term projection for a balanced portfolio that more or less corresponds with the needs of the reader who asked about their RRSP returns. With a portfolio half in bonds and cash and half in stocks from Canada, the United States and internationally, the projected after-fee returns are 3.7 per cent annually. Ramp up the risk level to 25-per-cent bonds and cash and 75-per-cent stocks, and you get annual returns of 4.5 per cent.

These returns sound modest after the great year we just had for stocks and bonds, but they’re based on forecasting by actuaries, economists and other people who do not get paid for selling investment products. They’re a good place to start in figuring out what a good target is for long-term RRSP returns.

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Rob’s personal finance reading list…

The top travel rewards card

RewardsCanada picks an overall best travel-rewards card, plus the best in subcategories such as no-fee and airline cards. “This year’s ranking reflects a holding pattern as the industry braces for what will likely be a seismic event; the unveiling of Air Canada’s new loyalty program,” RewardsCanada says.

Why women should talk more about how much money they make…

A strong argument that women can be underpaid because they lack information on what pay levels are typically like in various jobs and workplaces. The solution: Talk more about salaries and paycheques. “If we work together wherever we can, employers will no longer be able to vary salaries based on gender, race, sexual orientation, nationality or other factors.”

… and why women should negotiate more when discussing pay

Financial educator and author Kelley Keehn talks in this Q&A about how she learned the importance of negotiating what she’s paid.

Online brokers – the congeniality award

A look at which online brokers offer the best customer service. Here’s my latest overall ranking of online brokers.

Ask Rob

Q: I find reverse mortgages hard to grasp. Can you explain and list pros and cons?

A: With a reverse mortgage, you borrow against the equity in your home and pay the money back when you sell, along with interest that has been accumulating in the background. Here are some columns and a social media post for further reading on pros and cons.

Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.

Today’s financial tool

The BigCharts website is great for charting stocks, but it’s also useful for getting historical stock quotes. Type CA: in front of TSX-listed stock symbols.

In case you missed these Globe and Mail personal finance-related stories

  • Take a safety-first approach to retirement savings
  • Couple ready to play the long game as they plan for retirement
  • John Heinzl’s model dividend growth portfolio as of Jan. 31, 2020 (for Globe Unlimited subscribers)

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