I want to compare the performance of my portfolio with that of the S & P / TSX Composite Index. However, when I look at the annual returns of the S & P / TSX, the numbers vary from website to website. Is there a reliable source for the index returns?
The returns published by some websites may measure only the change in the index, without dividends, while others measure the total return, which assumes that all dividends have been reinvested.
To make a head-to-head comparison with your portfolio and to make sure you have a complete picture of how the S & P / TSX has performed, you should look at the index’s total return, including dividends. The method I’m going to show takes a bit of work, but it can be customized for any period and will also allow you to convert the total return of the S & P / TSX for any period to an annualized number.
The good news is that you don’t have to add up all the dividends paid by the stocks in the index to calculate its total return. Simply go to Investing.com and search for the S & P / TSX Composite Total Return Index (enter the symbol TRGSPTSE). This inflated version of the S & P / TSX measures the performance of the index with all dividends reinvested. By clicking on “historical data” and adjusting the date range, you can search for the values of the S & P / TSX Composite Total Return Index for any period.
Let’s say you’re interested in the performance of the S & P / TSX Composite Total Return Index for the 10 years ending June 30. According to Investing.com, the index closed at 55,943.07 that day. Ten years earlier, on June 30, 2010, it closed at 30,229.89. To calculate the total return for this period, subtract the starting value from the ending value. Then divide the difference – 25,713.18 – by the starting value. The answer is about 0.85, which is a total return of 85% including reinvested dividends.
Now, what is this 85% total return over the past 10 years on a compound annual basis? You can use a spreadsheet or a scientific calculator to figure this out. Or, to keep things simple, use an online annual rate of return calculator.
With a Google search I found a calculator here. I chose a start date of June 30, 2010 and an end date of June 30, 2020, then I entered the respective values of the total return index in the boxes “initial deposit” and “future value” ( the calculator is designed for dollar amounts, but index values also work well). Then I clicked on ‘calculate’ which revealed that the compound annual rate of return during the period was 6.35%.
(Incidentally, the annual compound return of the S & P / TSX Nature Composite Index over the same time period, excluding dividends, was around 3.2% – or about half of the total return including dividends. shows how important dividends are for investor returns.)
If this seems like too much work, there is an easier way to find the annualized return of the S & P / TSX Composite Total Return Index over various time periods. However, that doesn’t give you as much flexibility to customize the date ranges.
Go to the iShares Canada website and search for the iShares Core S & P / TSX Capped Composite Index (XIC) ETF page. Then click on “performance”. The line labeled “Benchmark%” shows the annualized total return of the S & P / TSX Composite Index – Dividends Reinvested – over periods of one, three, five and 10 years. You can specify a month end date, such as June 30, 2020 or December 31, 2019, or find the total index return for calendar years back to 2015.
I would like to get some tech exposure for my portfolio. What do you recommend?
Unless you have a deep understanding of the tech space, I wouldn’t recommend buying individual tech stocks. A low-cost exchange-traded fund with diversified exposure is a better bet because it will help you control your risk. I will discuss a few worthy candidates from the dozen available.
The iShares Core S&P US Growth ETF (IUSG) is not specifically a tech fund, but almost 40% of its weighting is in tech stocks such as Microsoft Corp. (MSFT), Apple Inc. (AAPL), Amazon.com Inc (AMZN), Facebook Inc. (FB) and Alphabet Inc. (GOOG). You will also find many pillars of non-tech growth such as Johnson & Johnson (JNJ) and Procter & Gamble Co. (PG), which increases diversification and can improve stability. IUSG’s management expense ratio is 0.04% at its lowest and the fund pays a modest dividend yield of around 1.4%.
For a pure-play technology fund, consider the Vanguard Information Technology ETF (VGT), which has an MER of 0.1%. If you invest in IUSG, VGT or dozens of other growth or tech ETFs listed in the United States, keep in mind that you will need to buy them in US dollars. This exposes you to the costs of currency conversion and the volatility of exchange rates. If you want to eliminate or at least minimize these currency effects, consider an ETF listed in Canada, like the BMO Nasdaq 100 CAD Hedged Equity ETF (ZQQ), which has about half of its assets in tech stocks and charges a fee. MER of 0.39%.
Send your questions to [email protected]. I am not able to respond to emails personally, but I choose certain questions to answer in my column.
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