Tag Archives: balance

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

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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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Do you keep an eye on the amount you can expect your ETFs to grow by retirement? Does it scare you into saving and investing more? Please share your views with a comment.

What If Tomorrow Never Comes? A Reminder to Seize the Day (but Perhaps Not Every Day)

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I think almost every person who writes about saving and retirement planning also writes about balance. Everything about money demands balance. You have to balance your income and your spending. You have to balance your cheque book so the amount in the account matches the amount being withdrawn. You are encouraged to balance your investments between various choices for risk and return, and re-balance your portfolio when it tips out of true. It’s also important to talk about balancing the present and the future.

While it’s good to save for future plans and for retirement, it’s important to balance that with some spending in the present day. Some people use the risk of not living to see another day as an excuse to over-spend and run up massive debts. That’s a ridiculous, unbalanced approach.

But it is essential to do some of your joyful living today.

Recently I found out acquaintances of my parents have got the news many of us dread to hear. The husband has stage 4 cancer. While he is young and otherwise healthy and therefore prepared to try any treatment that may result in remission, the truth is his future looks very uncertain.

Fortunately, this couple has always tried to live a balanced life. They didn’t wait till retirement to start enjoying the benefit of their difficult but well-paid jobs. They have already moved to a home that fits their ideals of being on the water in a rural, natural setting. They have travelled not everywhere they want but to some of the places they most want to visit. They have taken time to enjoy their lives and their family and friendships.

Imagine if they had lived differently? Imagine if they had postponed all of their travel, their new home, their evenings of wine and fellowship till they reached a goal of early retirement? How would they feel now if their bank accounts were full but the clock was slowing to a stop?

Finding the balancing point of any object is a meticulous exercise. If you’ve ever balanced a pencil on your fingertip, you know it can’t be done without thought and care. And conditions can change: a breeze can develop; a tremor can begin. Keeping the object in balance requires a steady stream of minor (and sometimes major!) adjustments.

I encourage you to face your life with that same mindful search for balance. Don’t end up over your ears in debt by trying too much too fast. But plan for and include as many moments of joy and personal satisfaction as you can within your daily life. Every so often, ask yourself the clichéd, “If I should die tomorrow, what would I truly regret not having done?” and then take measured steps towards reducing or eliminating those regrets.

I hope my parents’ acquaintance finds a return to good health. He’s a good man and deserves to continue to enjoy his life with his wife, family and friends as they had all expected and planned.

If you haven’t in a while, take some time tonight and reflect on what you hope to achieve while you are here and what goals you can afford to accomplish sooner rather than never.

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Have you or a friend faced bad news? Was there any comfort in looking at how you had balanced your life so far, or were you left wishing others could learn from your example? Please share your experiences with a comment.