With 15 Years Till Retirement, How Much Annual Return Growth Can I Expect for XIC the Canadian TSX Stock Market ETF?

Our retirement date is a moving target in part because we expect to get “retired” rather than to choose when to retire. This year alone, an entire tier of management, basically anyone 60 or older, has been offered a package to retire. (Those who don’t choose to accept the package are taking a risk that they may be simply “right sized” without any retirement bridge perks.) Who knows how bad it’s going to get? Still, I was looking at my XIC holdings the other day and began wondering roughly how much we could expect them to grow between now and retirement if that was, say, 15 years away.

XIC Is a Low-Fee ETF That Mirrors Most of the Toronto Stock Exchange (TSX) S&P Composite Index

XIC is a Blackrock iShares ETF. You buy units of the ETF on the stock market, just like shares of Bell or Enbridge. Unlike a mutual fund, the value of these units goes up and down throughout the day based on the value of the underlying stocks. Like a mutual fund, there is a management fee for these units: it’s low though at 0.05-0.06% a year.

I bought a bunch of XIC every month one year when I couldn’t spot any dividend paying stocks that I wanted to own forever offered at good prices. I figured I would be over-paying for some of the component stocks in the index fund, but under-paying for others so it should be overall beneficial.

Does XIC Pay a Dividend or Distribution? Can I Get Income from It?

XIC does pay distributions quarterly based on the underlying stocks. It yields about 2-3% a year although it’s not something you can actually estimate with any particular accuracy.

If you look under Performance, then Distributions, then Table, then Calendar Year, you can see the total annual distribution per unit for tax purposes. For the full years the unit has been offered, it’s varied from about 22 cents per unit to a high of 1.25 per unit. During those years, the price per unit has varied from about $10 to about $25.

What Capital Gain or Growth Can I Expect Over the “Long Term” For My XIC Investment?

I’ve been reading books and newspaper articles about planning for retirement and they use a wide variety of values for how much you can expect your long-term investments to grow.

I see things like “expect to grow 3% above inflation” and even “5% after inflation.” I’m always a bit skeptical of those numbers because I’ve been investing so long I’ve seen many market setbacks.

So knowing I bought my XIC units when the TSX was in the 15000 range and that it is still well below that this year (2016), I wondered whether “past performance could be used to predict future performance.” OK, I know it can’t. But I still wondered how XIC has actually performed over the long term.

First, I did a quick and dirty check looking at the values 15 years ago and today on the BMO InvestorLine website. That suggested a return of a bit less than 4.5% per year, not including the distributions. That suggested to me a return of 6-7% or so if you included the distributions.

So then, wanting a more accurate evaluation, I went onto the Blackrock website to look for the data.

They conveniently report the Total Return as an Average Annual return including distributions and changes to the NAV.

The total average annual return since inception, February 16 2001, is 6.02%. So my estimate was pretty accurate.

How Does the Total Average Annual Return for the Past 15+ Years Compare With the Rate of Inflation?

So if the return was 6.02%, how much of that was eaten up by inflation?

I went to the Bank of Canada website to see what they report the “average annual rate of inflation (%) / Decline in the Value of Money” was from 2001 to 2016.

They say that over 15 years, the rate of inflation was 1.83%.

(Anyone who actually owns and runs a home knows that the CPI tends to understate the actual rate of inflation for goods and services you actually need to survive, but it’s as good as I can get easily.

So What Can I Expect from My XIC for Long-Term Return After Inflation?

Ok, if I’m doing this correctly, that means that should future performance mirror past performance, which is very unlikely, then

6.02 % – 1.83 % = 4.19%

I really, really don’t think the data is accurate to two decimal places, so I’ll say “about 4%.”
In other words, I can expect my investment in XIC to grow about 4% a year for the next 15 years.

How Soon Will My Money Invested in XIC Double In Amount?

There’s an old estimating rule for how quickly your money will double in amount (not necessarily in value, as inflation plays a role in that.) You take 72 and divide it by the % that the money is growing each year.

So at 4%, my investment in XIC will double in amount in 18 years.


I guess I’d better hope they don’t retire me any day soon!

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Why Being Old Means I’m Not Upset by the Plunging Canadian Dollar, the Stock Market Meltdown or the Crude Oil Price Crisis

The waves of negative reporting on the state of Canada’s economy and even the world’s economy this week have been relentlessly pounding away at the walls of my financial sense of security. So far, however, they haven’t eroded my sense of calm: Because I’m old, I’m not particularly worried by the drop in the Canadian dollar, the stock markets pullbacks, or the ever-declining price for a barrel of crude.

Shouldn’t the Low Canadian Dollar Upset Me?

Actually, I kind of like it when the Canadian dollar declines against the US dollar. I often sell to the US and when I get paid in US dollars, I make a larger profit in Canadian terms for my work. I also have many relatives involved in producing goods that are exported to the US who also benefit from this. And other friends who work in the tourism industry who benefit when Americans decide to vacation “up here” to get an extra 25% or more for their dollar. (Don’t tell them that our rack rates for hotel rooms are often 50% higher than for a similar room in the US, so they won’t be saving much, ok?)

I am old enough to remember all the wailing and gnashing of teeth when the dollar rose to parity with the US dollar. It would spell doom and disaster for all of Canada’s “Branch Plant” operations. And unfortunately, in fact, it did in many cases.

The dollar is significantly down against the US dollar compared with a year ago but it’s been this low, and lower, within my children’s lifetimes. To me, with the hindsight of older age, I can see that it’s a cycle and that it will continue to change over the next 20 years too. I will try to buy things produced in Canada or in places where our exchange rate is reasonable. I will not travel to the US or to destinations that price based on the US dollar, but then I rarely did anyway. I will suffer through paying more for imported food, books and so on. But I am not particularly upset about it.

Am I Going to Sell All of My Stocks Since the TSX, the NYSE, the Dow Jones and Every Other Index Seems to be In Decline?

The markets have also been dropping steadily for what seems like forever. Some pundits are even screaming that everyone should retreat to cash now, before it’s “too late.”


There is nothing I can do personally about the stock market indices. I own some XIC and I will look at its market value and its book value and feel gloomy for a minute or two. But I won’t sell it. I didn’t invest in it to make a quick buck. I don’t need the cash from it now or anytime soon. Based on all of the news so far, I see no reason to think it will stop paying its small annual distribution of 2-3%. That’s the same or better than I can get for cash deposits. So I’ll just leave it alone.

When I bought my first index-mirroring mutual fund in the 1990s, it did very badly some years too. But over 20 years, it returned about 7%. Leaving it alone worked. I’ll try the strategy again here. And at least this time my fees are much lower!

Much of my other equity investment dollars is in individual shares in companies. I’ve looked through my holdings and don’t see any reason to make changes. They seem to be in reasonable financial shape. They still are making products, selling orders and generating revenue. They have not announced any dividend cuts. In most cases, their market values are also still above what I paid for them, even compensating for the time value of the money I invested. So no worries. I don’t want a bunch more cash. I’d like to get the dividend income if they can keep generating it. So I’ll hold and hope.

What Gives a Deeper Sense of Security During This Downturn?

My extremely conservative approach to investing is also helping me through this rough patch. We have a huge amount of our portfolio in fixed income, especially in GICs and high interest savings accounts. While this money generally is just breaking even with inflation, it is also still there ready to spend if needed. Its “principal” value has not declined.

If we want to, we could re-allocate some of this cash to equities. I won’t yet because I have no idea what is going on with the markets. So I’ll stick to our planned asset allocation. New money might be invested in equities, though, to keep our asset allocation on target as the market value of our existing equities drops. We’ll see.

How Low Can the Price of Crude Oil Go?

Well, I remember working when the price of crude oil fell to $7 a barrel for WTI. So that’s my personal benchmark. I’ll be surprised if it drops below $7 but I won’t be surprised otherwise. If the Saudis decide to really open their taps, they could drop it to that price quite easily.

When I worked in Calgary, we used to joke that instead of pins commemorating another 5 years of service, you should get a bar for each layoff and downsizing you survived. So you’d have a little medal saying “I survived” where you could add new bars below it: the Purge of ’XX; the Diagonal Slice of ’YY; the Right Sizing of ‘ZZ” etc.

Oil prices have NEVER been even remotely influenced by anything Canada does. I can’t see why they ever would be. So again, you have to shrug it off and keep walking forward. There’s really nothing else you can do. (Ok, maybe get a few extra gasoline storage tanks and fill up while the price is low.)

Alfred E. Neuman and I have the same approach to all these negative news stories. There’s still work to be done, housework to be done, birthdays to be celebrated, sidewalks to be shoveled and people who need hands-on support. I’ll save my worrying for those real issues.

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