Tag Archives: cost of living

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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Will a Scorcher Summer Ruin Our Budget for Electricity Or Will It Just Be the Astronomical Rate Increases?

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We don’t have an energy efficient home. We have old windows and only one new door and you can feel the drafts around your ankles in the winter. We do keep an eye on our electricity usage, though. We have power bars on our TVs, microwave, stereo, computers, router and various other appliances. Still, when I got our June hydro bill I started to wonder what to expect if we have a record-breaking heat wave this summer especially if it arrives along with yet another huge increase in the rate per kWh.

Will Dropping the Number of kWh We Use Dramatically Drop Our Hydro Bill?

Maybe. Our bill is not just based on the amount of electricity we use. It also includes delivery charges, costs for the infrastructure, costs for regulatory charges, for who knows what, and debt retirement charges, which probably include the original debt on building the generating station at Niagara Falls. Some of these are based on the kWh used but I’m not sure that all of them are.

Why Is Our Ontario Hydro Bill So High for 2016?

The most obvious increase in price for our residential electricity costs in 2016 is a change in government sleight-of-hand. We’d been getting a 10% “discount” from a previous election promise. That’s over now, so we saw an immediate 10% increase in our bill.

The nasty part of the “discount” is while our electricity costs appeared to be temporarily reduced we still have to pay that amount either in increased taxes or in future electricity “debt retirement” charges—worse, we might even have to pay more as interest fees!

And let’s not forget we also pay HST. That was almost $30 on the most recent bill!

There have also been some painful rate increases as well. They’ve been much higher than the rate of inflation estimated by the federal government. I’m sure it hurts those on pensions such as CPP which are increased only at the artificially low cost of living increase calculated by the feds.

It hurts us even more as this is the third year with NO raise or cost of living raise at work. Yes, our take-home pay has been losing ground to inflation for three years now with no end in sight. That’s good training, of course, for retirement when only our CPP and OAS will be indexed. That’s also why I prefer some of our future retirement income to come from dividend-payers who increase their dividends to at least keep pace with inflation.

Should We Use Our Air Conditioner If We’re Already Spending Too Much for Electricity?

Every year I tell the kids that they should be grateful if we use the air conditioner at all. We didn’t have a/c when I was growing up and I can vividly remember sweltering. The best (or worst) benefit (or drawback) of air conditioning is that it drops the humidity significantly.

That can be a real blessing when the humidity is up near 100% and it’s also pushing 35-40 C.

How Do We Reduce Our Electricity Costs for Air Conditioning our House?

We usually only run our air conditioner from 7 p.m. till 7 a.m. We try to drop the temperature to somewhere in the low 70s between midnight and 5 a.m. The temperature then gradually climbs all day and it can get pretty hot by the early evening.

This compromise has helped keep the cost of the electricity to run the unit to something tolerable. It means the load is during the “off peak” hours which have the lowest rate at 0.087 $/kWh. That’s less than half of the prime time rate.

Air Conditioners also run best when their is a good differential between the temperature of the outside air and the temperature of the inside air. At night, in theory, it’s cooler outside, allowing the air conditioner to run more efficiently than at, say, high noon.

So for now, we’ll keep using the air conditioner. But I hope I don’t regret it when we get our next bill!

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