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