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Email this7:26 am
April 6, 2013
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Loonie said (in Risk tolerance and investment balance)
Don Bortolotti did a chart about a year ago showing insignificant differences over 10 years , not worth the risk. Sorry , I can't find it at the moment, but I remember it because I questioned him about it in person.
I suspect those ten-year periods included 2008. My interpretation of such a chart is that it takes a crash like 2008 to bring long term equity returns down to the return on GIC's and bonds.
Loonie said
It was precisely those ETFs where Bortolotti found his results , as that's what he specializes in. It did not look good for his approach so he had no reason to manipulate the result. Yes, it would have included 2008 because it ended at end of 2016. However you slice it, it's a fair period of time.
Bortolotti seems to be a big fan of the Canadian Universe Bond Index for fixed income. I think the comparison may have been something like this:
| ETF | 10 years to December 31, 2016 |
| iShares Core Canadian Universe Bond Index ETF (XBB) tracks FTSE TMX Canada Universe Bond Index |
4.44% per annum (benchmark 4.78%) |
| iShares Core S&P/TSX Capped Composite Index ETF (XIC) tracks S&P/TSX Capped Composite Index |
4.52% per annum (benchmark 4.72%) |
8:16 am
October 27, 2013
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Data mining can present whatever one wants. Just pick the right start and end dates for one's argument. The quoted period includes a 'significant' bull market in bonds as interest rates decreased dramatically due to the financial crisis, and on the other hand, the equity market includes the financial crisis AND the crash of the super commodity cycle in Canada in 2014/2015. Stuff like this can be considered financial pornography if not qualified.
The real test is for one to chart their own data over various periods of time. Most of what one needs to chart can be found on the Stingy Investor site using the Asset Mixer http://www.ndir.com/cgi-bin/do.....de_adv.cgi
11:26 am
October 21, 2013
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As I recall, it was a little more complex than what Norman has cited, but the results were about the same.
I agre that it's your own start and end dates that really matter. The issue is that while we may know our start dates, we don't know our end dates. Therefore you may find yourself needing your capital at a time when it's not so available.
There is always a reason or explanation as to why things worked out the way they did - in hindsight. Most years, if not all, are either a bull or a bear for something or other. That's the point, and the problem.
I must reiterate that Bortolotti did not choose his dates in order to present a rosy picture for bonds. He was doing an objective charting of his own investment recommendations, to date. Ten years is a fair period (and he may also have offered 20 years - I can't precisely remember), as that is what the financial industry often quotes to prospective investors as the minimum period they need to look at for reliable returns.
3:30 pm
October 27, 2013
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Fair enough about not knowing our end dates but that is not the issue at hand. Both bonds and equity have capital at risk when we don't know the end date.
We just finished coming out of a 30+ year bond bull to a yield curve which could not go a whole lot lower in the last few years. So it is probably more unknown today than at any other time to forecast what bonds will do going forward and what we might expect from bonds of all durations.
A big question being discussed in the industry the last week or so is the huge addition to the US deficit that the Trump tax bill will cause and whether China et al will balk at buying even more US 10 year Treasury bills. There are indications foreign countries are not willing to continue to finance US budgetary needs much more, unless they are paid handsomely for it. IF that happens, look for US Treasury 10 year yields to rise significantly (prices collapse) in due course and that will have spill over to Canada.
4:50 pm
October 21, 2013
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It's true you can't say what our bonds will be worth in six months or five years or whatever, but you do know what they'll be worth when they mature (assuming highest quality), and we can choose our maturity dates when we buy them.
The Trump goings-on are very interesting, although I can't claim to understand it all. I imagine that what we are witnessing, one way or another, is the decline of the US as a nation - except, I suppose, for the wealthy. For now, they still have bigger and better bombs than anyone else, I suppose, but that will not last forever, especially if they are squeezed financially. Then what?
9:17 pm
April 6, 2013
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The issue with the ten-year fixed income 4.44% return is that most of the return is from the speculative gains in bond prices as the result of dramatic interest rate drops AltaRed mentioned. Those rate drops would have boosted the prices significantly of the 20+ year bonds in XBB.
Those gains will evaporate as the bond approaches maturity.
The effect can be seen in the astonishing calendar year returns of XBB in contrast to the 5-year GIC rates from Trahair's data set:
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
| XBB returns | 3.29% | 6.13% | 4.98% | 6.36% | 9.38% | 3.26% | -1.50% | 8.46% | 3.14% | 1.36% |
| 5-year GIC rates | 3.31% | 3.01% | 1.94% | 1.97% | 1.87% | 1.65% | 1.63% | 1.90% | ||
| Actual 5-year GIC | 3.31% | 1.65% | ||||||||
I'm pretty sure I didn't overlook any Canadian government bonds issued in 2011 that paid 9%+ and again in 2014 that paid 8%+!
If one had bought a five-year GIC in 2007 and then rolled it over in 2012, the compounded annual return would be just 2.48% per annum.
9:39 pm
October 21, 2013
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I can't follow what you are saying, Norman, but I could follow what Bortolotti wrote and said, and I discussed it with him personally. And that's about all I can say about this.
8:40 am
April 6, 2013
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Essentially, the comparison should include GIC's to give more context:
| ETF | 10 years to December 31, 2016 |
| iShares Core Canadian Universe Bond Index ETF (XBB) tracks FTSE TMX Canada Universe Bond Index |
4.44% per annum (benchmark 4.78%) |
| iShares Core S&P/TSX Capped Composite Index ETF (XIC) tracks S&P/TSX Capped Composite Index |
4.52% per annum (benchmark 4.72%) |
| 5-year GIC's 3.31% for five years and 1.65% for five years |
2.48% per annum |
There was no convergence of returns between Canadian stocks and GIC's. Canadian stocks still outperformed GIC's over the ten-year period, even with reduced stock returns from the 2008 crash.
My experience is that GIC returns are higher than bonds. These days, I've always been able to find better returns with GIC's than with government or corporate bonds. Consequently, Canadian stocks would have also outperformed bonds.
The reason the Canada Universe Bond Index and XBB return were 4.44% to 4.78%, when 5-year GIC's were just 2.48%, was because of the increase in the market value of the 20+ year bonds in the index and XBB from the fall in interest rates. Any bond portfolio without those long-term bonds would have returned closer to 2.48% than 4.44% during the period.
I remember looking at something like this awhile back. Articles popped up in the press questioning the value of asset allocation. Does it really matter if one has 60% stock/40% bonds or 100% bonds when the returns were so close? I don't remember seeing any Nobel-prize worthy findings behind the results then either.
10:57 am
October 27, 2013
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I follow Bortolotti with his MoneySense articles and while he is much better than most in unbiased blogging, and educates the average retail consumer well, he does pick data sets to make his point.
Again not critical of that, but it is not helpful for investors at large to pick a data set that compares a bond bull market with a lagging TSX Capped Composite, at least not without also saying different data sets will provide different results.
By the way:
XBB 2016 performance was 1.26% and XIC performance was 21.01%
XBB 2017 performance was 2.34% and XIC performance was 9.05%.
It will most likely be a different story when someday one compares 2010-2019 period (purposely picking something here that will likely favour equities but not the worst I could do). I purposely am not picking 2009-2018 because the TSX equity market started 2009 at recession lows and ended 2009 with a 34.55% gain! One can argue anything depending on the data set they wish to pick.
7:41 am
April 6, 2013
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It will be a few more years before the ten-year returns will diverge.
Most of the extraordinary ten-year return from XBB are from 2008 to 2011 and 2014:
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
| XBB returns | 3.29% | 6.13% | 4.98% | 6.36% | 9.38% | 3.26% | -1.50% | 8.46% | 3.14% | 1.36% |
After most of those years drop off, I'm pretty sure the 2012-2021 period will look different.
Again, people who invest in bonds (buy and hold to maturity) won't see those gains powered by price gains of the 20+ year bonds in the index and XBB. The gains will be clawed back by price losses in future years as those bonds approach maturity.
Please write your comments in the forum.