Canadian asset class returns
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Researchers at the London Business School have created indexes that track Canadian asset class returns for three basic assets: Canadian stocks, Canadian bonds, and Canadian treasury bills, from the year 1900 to the present.
Asset class returns 1900 - 2000
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(view Google Spreadsheet in browser or download as xls, ods, or pdf) |
The long term returns produced by Canadian markets from 1900 to 2000 (as measured by ABN AMRO/LBS indexes) have rewarded investors with positive long term compounded returns. Over the century, Canadian equities provided a nominal compound return of 9.7%; long-term conventional bonds provided a nominal compound return of 5.0%; and treasury bills produced a nominal compound return of 4.9%. These returns were consistent with the volatility of each investment. As measured by standard deviation, higher returns were correlated to higher risk.
- Canadian stock standard deviation : 16.6%
- Canadian bond standard deviation : 8.9%
- Canadian treasury bill standard deviation: 3.7%
Of more importance to investors is the after inflation real return of investment. The real returns of Canadian asset classes over the past century were 6.4% for Canadian equities; 1.8% for Canadian conventional bonds, and 1.7% for Canadian bills. (These returns do not reflect the costs of investing nor the tax due on investment income).
These very long term compound return rates are the result of considerable shorter term variance. Over twenty year periods, the annualized real return of the Canadian stock market has ranged from 1.8% real compound return to 11.5% real compound return. [2] In the 1900 - 1950 period Canadian conventional bonds provided a real 1.2% return; from 1950 - 2000 conventional bonds provided a real 2.5% return. [3] Inflation was lower before 1950 (2.1%) than for the 1950 - 2000 period (4.1%). [4]
The table below shows the real returns provided by Canadian markets over each decade of the twentieth century.
| Years | Equity | Bonds | Bills | Inflation |
|---|---|---|---|---|
| 1900-1909 | 6.4% | 0.2% | 2.8% | 1.9% |
| 1910-1919 | 0.4% | -7.6% | -2.0% | 6.8% |
| 1920-1929 | 15.5% | 7.3% | 6.1% | -0.9% |
| 1930-1939 | 2.9% | 7.5% | 3.5% | -1.8% |
| 1940-1949 | 4.2% | -0.6% | -3.9% | 4.5% |
| 1950-1959 | 12.5% | -2.1% | -0.3% | 2.4% |
| 1960-1969 | 7.1% | 0.1% | 1.9% | 2.6% |
| 1970-1979 | 2.4% | -1.6% | -0.2% | 7.6% |
| 1980-1989 | 5.5% | 6.4% | 5.5% | 6.2% |
| 1990-1999 | 7.8% | 9.3% | 4.1% | 2.2% |
The range of annual returns in the Canadian markets over the twentieth century are provided in the table below:
| Asset class | Lowest return nominal |
Year | Highest return nominal |
Year | Lowest return real |
Year | Highest return real |
Year |
|---|---|---|---|---|---|---|---|---|
| Equities | -33.0% | 1931 | 51.6% | 1933 | -32.0% | 1974 | 55.2% | 1933 |
| Bonds | -23.9% | 1915 | 43.0% | 1982 | -25.9% | 1915 | 41.7% | 1921 |
| Bills | 0.4% | 1946 | 20.4% | 1981 | -12.5% | 1941 | 27.1% | 1921 |
To put the Canadian numbers in perspective, here are similar data for a 120 year period (instead of 100 years above), for other markets:
| Country | Geometric mean (%) | Arithmetic mean (%) | Standard deviation (%) | Minimum (%) | Maximum (%) |
|---|---|---|---|---|---|
| Europe (USD) | 4.3 | 6.1 | 19.7 | -48 | +75 |
| Japan (local) | 4.2 | 8.7 | 29.2 | -86 | +121 |
| USA (local) | 6.5 | 8.5 | 19.9 | -39 | +56 |
| World (USD) | 5.2 | 6.6 | 17.4 | -42 | +68 |
Asset class returns from 1970
The following table provides returns data for a broader selection of Canadian investments. Return histories date back to 1970 for equities, t-bills, conventional all bonds, conventional long bonds, and gold bullion. Short term conventional bond data begins in 1980; Real Return Bonds data begins in 1993. [7]
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(view Google Spreadsheet in browser or download as xls, ods, or pdf) |
Expected returns
Historical returns and in particular standard deviations give some idea of how each asset class tends to behave. But historical returns on their own should probably not be used for financial planning purposes. For example, high historical stock returns might have been partly due to rising valuations[citation needed] and may not be repeated. Similarly, high nominal returns for cash and fixed income during some periods were accompanied by high inflation (see above) or falling interest rates, and may not be repeated.
Instead, investors want a prudent estimate of expected returns over the long term (more than 10 years), for planning purposes. FP Canada and Institut québécois de la planification financière jointly publish such an estimate every year in April.[9] The data sources they use are: (1) the CPP actuarial report, (2) the QPP actuarial report, (3) industry/expert surveys; (4) market based expected returns; (5) for stocks only, 50 years of historical returns.
Investors should substract fees and taxes from published expected returns.
See also
References
- ^ Credit Suisse Yearbook 2012, Retrieved 10 December 2012.
- ^ Dimson, Elroy; Marsh, Paul; Staunton, Mike. Irrational Optimism. 6 December 2003 (Version 17). Retrieved 15 December 2012.
- ^ "Triumph of the Optimists", p. 80.
- ^ "Triumph of the Optimists", p. 67.
- ^ a b Dimson, Elroy; Marsh, Paul; and Staunton, Mike; (2002). Triumph of the Optimists. Princeton, New Jersey and Oxford: Princeton University Press. p. 241. ISBN 0-691-09194-3.
- ^ Dimson E, Marsh P, Staunton M (2020) Credit Suisse Global Investment Returns Yearbook 2020, summary edition, viewed June 17, 2023.
- ^
Canadian compound asset class returns (from 1970 onwards) (view Google Spreadsheet in browser or download as xls, ods, or pdf)
- ^ Asset returns source :Periodic Table of Annual Returns for Canadians, Stingy Investor; Canadian CPI data source:Historic inflation Canada – Historic CPI inflation Canada, inflation.eu, Retrieved 21 December 2012.
- ^ Institute of Financial Planning and FP Canada, Projection assumption guidelines, effective April 30, 2024, viewed April 23, 2024.
External links
Calculating returns
- A Returns Spreadsheet for Bogleheads - Bogleheads.org, discussion of a returns spreadsheet that is generic and can be used by Canadian investors.
- Calculating personal returns - Bogleheads.org, the wiki page (and download) for the returns spreadsheet.
Canadian data sources
- Libra Investment Management, Excel spreadsheet, Annual returns, both nominal and inflation adjusted. Also includes US equities, international equities, and emerging market equities, all expressed in Canadian dollars.
- Stingy Investor, Periodic Table of Annual Returns for Canadians
- Stingy Investor, The Stingy Investor Asset Mixer
- Historic inflation Canada – Historic CPI inflation Canada, inflation.eu, Retrieved 21 December 2012.
Credit Suisse Yearbook
- Credit Suisse Global Investment Returns Yearbook 2016 - Credit Suisse. The Yearbook is available as a free download. (PDF)
- Credit Suisse Global Investment Returns Yearbook 2015 (PDF)
- Credit Suisse Global Investment Returns Yearbook 2014 (PDF)
- Credit Suisse Global Investment Returns Yearbook 2013 (PDF)
- Credit Suisse Yearbook 2012, Retrieved 10 December 2012.
- Credit Suisse Yearbook 2011, Retrieved 15 December 2012.
- Credit Suisse Yearbook 2010, available for download. Retrieved 15 December 2012.
- Credit Suisse Yearbook 2009, available for download. Retrieved 15 December 2012.
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