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charting retirement

Until 2005, Canadians were severely restricted in how much of their RRSP portfolio (or registered pension plan) they could hold in foreign securities. Those restrictions no longer exist but the question remains of just how important is it to diversify globally?

We will consider only equities with the returns measured in Canadian dollars. The three options are (a) U.S. equities (the S&P 500), (b) Canadian equities (the S&P/TSX) and (c) the World, as represented by investing a third in U.S. equities, a third in Canadian equities and the balance in the MSCI World Index, excluding the U.S. I’ve chosen 10-year time periods because retirees cannot afford to wait 20 years – or longer – to get satisfactory results.

If one wanted consistently mediocre results, Canada would seem to be the place to invest as 10-year average annual returns were never worse than 5 per cent. The returns in the U.S. have been spectacular with the glaring exception of the 2000s, where U.S. equity returns suffered the triple whammy of the bursting of the dot-com bubble, the rise in the Canadian dollar and the Great Recession of 2008-09. Diversifying around the world has provided decent returns for the most part.

As for the future, there are two big questions from a Canadian perspective. First, will the Canadian dollar strengthen? Second, how big an impact will AI have on returns (and which region will benefit the most)? In the absence of clear-cut answers, diversification may be the best course.

Frederick Vettese is a former chief actuary of Morneau Shepell and author of the PERC retirement calculator (

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