Many investors are referring to the poor returns in the past 10 years as the “lost decade”. But, as you can see below, with six out of eight asset classes showing positive returns in the past ten years, whether the decade was lost or not depends on who you ask. Without a doubt, Canadian investors have earned poor returns in US and EAFE equities. The poor returns in these markets were compounded by the appreciation in the Canadian dollar and if you take inflation into account, the real returns are even worse.
Cash: 3.17%
Short Canadian Bonds: 5.74%
Real-Return Bonds: 8.92%
TSX Composite: 5.61%
S&P 500: -4.04%
MSCI EAFE: -1.59%
MSCI Emerging Markets: 6.68%
Canadian REITs*: 6.1%
Inflation*: 2.2%
Unless you started the past decade as an aggressive investor with a high exposure to US and EAFE stocks, you earned real returns that, albeit modest, are positive. Even the Sleepy Portfolio, which has a 45% combined allocation to US and EAFE markets, managed to return 2.4% over the past ten years (assuming yearly rebalancing). But very few investors tend to put all their money to work precisely at the start of 2000 and stop investing thereafter. An investor adding the same amount to the Sleepy Portfolio at the start of every year from 2000 to 2009 would have earned 3.6% on their investments (computed by the internal rate of return method). Compared to the roaring 1980s and 1990s, these numbers are rather modest but a 1.4% real return is still better than nothing.
* – Approximate 10-year annualized returns
