I recently received my December statement for both my RRSP and TFSA portfolio. This portfolio is for retirement purposes only, therefore I don’t plan to draw from it until I retire.
As an information, its breakdown is as follow: 75 % equities, 20% bonds, 5% cash. Its geographical allocation is predominantly North American, but I have made efforts to diversify as much as possible, and also have investments in Japan, Europe, China and emerging countries. The equity portion of my portfolio is across pretty much all sectors.
Disclaimer: I am not a Financial Adviser and the above information is just that. Information. You should always do your own research before deciding on how and where to invest your hard-earned money.
Back to my returns, my RRSP return for 2019 was an astonishing 22% and my TFSA’s was 19%.
I didn’t let these numbers dazzle me
Why, you may -rightfully- ask.
Well, first of all, these returns are only “paper-returns”. What I mean by this, is that these returns are unrealized. In order to actually “bag” those numbers, I would need to sell my entire portfolio.
Remember, as long as you haven’t sold, you are not actually making or losing money.
Secondly, these returns are only for one point in time, aka 2019. 2019 has come and gone.
So what number to look for instead?
Look for return since inception instead
Return since inception simply means return since you first started your portfolio. Most brokerage firms will give you that number, the same way they give you monthly and annual returns.
Returns since inception take into consideration all time-periods, as well as the associated market fluctuations. I find that number to be more realistic than a monthly or yearly return.
Returns since inception don’t tell the whole story either
Actually, none of the various rates of return ever do.
As a time-weighted return, the return since inception doesn’t take into considerations any movement within your portfolio such as withdrawals and contributions.
For that, you need to look at your money-weighted rate of return.
And also keep in mind that any return rate never accounts for inflation or taxes, making it further complicated to figure-out your real rate of return….