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.

Sigh.

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

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Where Can I Get the Best Rate of Return on my RRSP GIC?

If you’re planning to take money out of your RRSP for the Home Buyers’ Plan or Lifelong Learning Plan you may need to keep it safe in either a cash account of a short-term GIC. Or you may just want to keep some of your fixed income RRSP investments in GICs. Whatever the reason, it’s getting harder each year to find a decent interest rate for your GICs. Today I went searching around the internet to see what types of rates are on offer. I was disappointed to find that very few places are offering a promotion with a good rate for this RRSP season. Here’s where I found the best (and worst) rates for RRSP GICs.

RRSP GIC Rates Vary Daily: Be Wary

These are the rates being offered on Monday February 9 2015. They are subject to change without notice but may give you some idea of where to start looking. Please be sure to call and confirm a rate before applying!

A Comparison of RRSP GIC Rates February 2015

Place Cash deposit rate 1 year GIC 5 year GIC Insurance and Other Comments
BMO 0.1% 1.0% min $1000 1.5% min $1000 A 5-year RateRiser Max GIC has an annual equivalent rate of 1.82%CDIC insured
CIBC 0.25% 0.65% min $500 or0.75% on Bonus Rate RRSP GIC min $500 1.5% min $500 or1.5269% on Escalating Rate GIC min $500 CDIC insured
DUCA n/a 1.8 % min $500 2.6% m in $500 DICO insured
Meridian n/a 1.4% min $500 2.1% min $500 3 month term GIC with an annual rate of 3% min $500 DICO insured
Oaken Financial n/a 1.9 min $1000 2.6 % min $1 000 1.75% min $2500 cashable after 90 days CDIC insured
PC Financial 0.50 % 1.05% 1.8% CDIC insuredFee to transfer out
People’s Trust n/a 2.4% min $1000 2.65% min $1000 Currently no transfer fees! CDIC insured
Tangerine 1.05 % 1.05 1.8 % CDIC insuredFee to transfer out
BMO InvestorLine 1.00 % min $5000 1.5% min $5000 2.05% min $5000 CDIC insured
CIBC Investor’s Edge 1.1% min $1000 1.4% min $5000 2.05% min $5000 CDIC insured
RBC Direct Investing 1.0% min $500 1.5 % min $3500 2.05% min $3500 CDIC insured

Note: None of these GICs can be cashed before maturity unless otherwise noted. Be sure to check the terms and conditions before buying any GIC.

People’s Trust Is Offering the Best RRSP GIC Rate and Deal (At Least for Today!)

So the best rate I could find today for a 1-year term, RRSP GIC was from People’s Trust. They are offering 2.4%. They are also insured by CDIC. That’s the same one that insures big bank GICs like those offered by BMO and CIBC.

At this time, People’s Trust is also advertising that it does not charge any fees for transfers. That’s great news but always be aware that they could change that just like Tangerine did.

Upon maturity, your People’s Trust RRSP GIC will be re-invested for the same term if you don’t give alternate instructions. You can also change the instructions for 10 days after it matures. I’m not quite sure how you are supposed to handle it if you want to transfer the money out to another RRSP at maturity. I think you could do it by specifying on your transfer form that you want the transfer to be effective on the date the GIC matures. (It may also be possible to transfer the GIC in kind to a brokerage. You can discuss that with your brokerage ahead of time.)

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