3 Year History
Usually when investors talk about expected market returns we like to look at historical averages. Over the past 115 years stock markets in the developed world delivered an annualized return of roughly 8.5%. This means we can probably assume that a normal range would be somewhere between 6% and 11%.
I use TD as my discount brokerage at the moment. It has a useful tool to help me gauge my portfolio performance over the years. Most of my stocks are held in registered accounts such as TFSAs or RRSPs, which have preferential tax benefits. Here is a quick overview of how my securities in those accounts have performed over the last 3 years. The green line represents my portfolio performance.
As we can see my overall stocks have achieved a 7.33% annualized rate of return since Sept 2012. This is not that surprising and falls within the 6% to 11% range of a normal market return. Also since I can’t use margin to borrow and invest inside these registered accounts, none of my stocks in this chart uses any leverage.
The blue line represents the Canadian stock market index, which has only returned 8.65% over the last 3 years, or 2.8% annualized. This means I technically beat the market here in Canada by more than 4% a year, which is just peachy keen! 😀 But that’s probably because I hold some U.S. stocks in my RRSP and TFSA.
The purple line represents the S&P 500 index in the U.S. The graph shows it has climbed 80.22% since 2012. But keep in mind that this factors in the currency exchange. Otherwise, the return in $USD is closer to 47%, which is still pretty dope. The U.S. currency has become very strong over the past couple of years. Any Canadian who held U.S. stock would have seen double-digit returns even if the price of their stocks didn’t change domestically in U.S. dollars. 😀
Here are a few things I learned from this performance chart. I’ll be keeping these things in mind going forward.
- It’s possible to pick and choose individual stocks without underperforming the market index, as long as you have the discipline to buy and hold most of the time.
- Canadian stocks rely too much on commodity prices. Whenever oil and metal prices fall the market really struggles.
- Buy some foreign currencies to hold investments that are denominated in those currencies.
- Diversify globally. Holding a Canadian equity index fund, like the Vanguard Canada All Cap Index ETF, (symbol VCN,) would have barely even beat inflation over the past 3 years, and even the past 5 years.