Retirement Income: Can your RRIF survive the stress test?

Investing your registered retirement income fund in stocks and bonds will produce some troubling losses every so often, but you have little choice these days if you want to achieve a decent long-term return on your investments.

The question is, just how unstable will returns be in a portfolio that includes stocks? We can get a good idea of how a RRIF portfolio might behave by looking at historical returns achieved by Canadian pension funds. Over the 54-year period 1960-2013, the average equity weighting in pension funds would have hovered in the 50% to 60% range with the rest being invested primarily in bonds. As for investment results, here is what happened to the median Canadian pension fund since 1960:

  1. Only once were fund returns negative two years in a row (1973-74).
  2. The worst cumulative loss over any two-year period was 14.6% (in 2007-2008).
  3. The worst cumulative loss over any three-year period was just 4.1% (2006-2008).
  4. In any given decade, we can expect one or two calendar years of net losses.
  5. Every decade has included at least two, and as many as seven, years with returns over 10%.
  6. The average annual return was about 8%, after fees.

See more and read the whole article here: financialpost.com

From Fred Vettese

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