The Importance of Diversification
Historical Return Comparison
How you should invest your money? It depends on how long you will invest those funds and your attitude toward investment risk. While investments in equities have earned higher returns in the past when held over a long period of time, such investments are more risky and volatile. This means there is a greater likelihood of low or negative returns over time than with lower risk assets such as cash and money market funds.
Experts say that most of the investment returns are attributable to the allocation of your investments between asset classes, not the actual fund selection. And a proper allocation always involves diversification between each asset class in accordance with your risk profile and investment horizon.
See How Various Asset Allocations Did in the Past
Here's how the historical return comparison tool works. Starting with an initial investment, you can compare how two investment strategies would have fared in hindsight. This will give you an idea of the volatility of each approach and how much money you would end up with at the end of the period. You can select either a starting and ending calendar years, or apply the illustration for a number of years (up to 40) prior to the beginning of the current year.
Results
During the illustration period, Equities - Canadian portfolio had the following performance:
- Average annual return: 9.65% (1990-2010)
- Best annual return: 35.10% (2009)
- Worst annual return: -33.00% (2008)
Over the same period, the Equities - US portfolio had the following performance:
- Average annual return: 9.17% (1990-2010)
- Best annual return: 39.18% (1997)
- Worst annual return: -22.84% (2002)
Learn more
It is important not to put all your eggs in one basket when it comes to investing. This is because for certain years one asset class may do very well (e.g., Canadian equities in 2005), while in other years other asset classes take over with strong performance (e.g., fixed income in 2000). The end result is a less volatile portfolio and stronger performance over time.
