A friend asked me to take a look at his portfolio. His concern was whether he was getting a reasonable return from his investment holdings.
As a case study, this person represents the ideal: no debt, a sustained pattern of consistent and disciplined savings, and living within his household income. He will finish well whereas many Canadians are poorly prepared for retirement.
I have posted about this before. And the data are worth repeating:
The leading edge of the boomer demographic is generally unprepared for retirement. For most Canadians, paying off the mortgage and acquiring RRSP savings are the primary savings strategies.
The Survey of Financial Security, in a report from 1999, found that among those people aged 55 to 64 only 75% owned homes and the median value of owned homes was $130,000. 25% were renting. Only 67% owned RRSPs with a median value of $50,000. The data means that a third had no RRSPs and another third had less than $50,000 in RRSP savings.
Basically, 21% of households near retirement in 1999 had no retirement savings at all and the savings of the next richest 32% of households averaged only $40,000. The survey quite rightly describes those amounts as futile.
It gets worse.
CIBC”™s economist estimates that 40% of Canadian households have no financial savings outside of their personal savings and chequing accounts. And the savings rate in Canada is at its lowest level since the 1920s.
The S&P/TSX Composite Index, including dividends, produced an average annualized return of 9.5 percent. Over the last 10 years, a time period that included a significant bear and bull market, the index produced an annualized return of 10.2 percent. Over the last 15 years, the average return was 10.5 percent. Over the last 20 years, it was 9.4 percent.
My benchmark is the index. I expect my portfolio to achieve an annualized return of at least 10 percent over the long run. My friend’s portfolio, over the past five years, was achieving much less than the index. That should not be the case. Unless, of course, you only hold Microsoft stock.