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Expectations for Investment Returns

When you invest your hard-earned money, what rate of return should you expect from your investment?

We all want to see strong returns, but you should avoid the mistake of expecting 
unreasonably high returns. If you're counting on unrealistic returns to fund your desired retirement lifestyle, you run the risk of being sorely disappointed.
Projection Assumption Guidelines
In Canada, financial advisors who develop financial plans for their clients base their rate-of-return expectations on a broadly accepted set of industry guidelines known as the Projection Assumption Guidelines. Every year, the guidelines are updated by the Financial Planning Standards Council (FPSC) and Institut Québécois de planification financière (IQPF).

Each projection is developed by actuarial and financial planning professionals, drawing on multiple independent, reliable data sources. The sources include the Canada Pension Plan actuarial report, the Willis Towers Watson annual Canadian investment perspectives survey and historical market data.

Significantly, by using the guidelines, we're able to make long-term (10 or more years) financial projections that are free from potential biases, both our own and those of our clients.

According to the Projection Assumption Guidelines for 2017, conservative long-term investors should expect annual returns of 3.25 per cent, while balanced investors should expect 3.92 per cent and aggressive investors 4.75 per cent, all after fees.

The clear takeaway from these projections is that you cannot expect the returns on your investments to make up for insufficient retirement savings. In developing your financial plan, you simply must put appropriate emphasis on deposits to your account to achieve your retirement goals.
Summary of the projections for 2017
  • Inflation: 2 per cent, down from 2.1 per cent last year
  • Short-term debt: 2.9 per cent, down from 3 per cent last year
  • Bonds: 3.9 per cent, down from 4 per cent
  • Canadian stocks: 6.5 per cent, up from 6.4 per cent
  • Foreign developed market stocks: 6.7 per cent, down from 6.8 per cent
  • Emerging market stocks: 7.5 per cent, down from 7.7 per cent

These projections were used to generate sample portfolio guidelines for conservative, balanced and aggressive investors:

Conservative portfolio
5% short-term bonds, 70% diversified bonds and 25% Canadian stocks

Balanced portfolio
5% short-term bonds, 45% diversified bonds and 40% Canadian stocks and 10% foreign stocks

Aggressive portfolio
5% short-term bonds, 20% diversified bonds, 35% Canadian stocks, 25% foreign stocks and 15% emerging market stocks.
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