Accumulating wealth
The power of compound interest
Pre-authorized contribution plan
The following charts demonstrate how monthly contributions, aided by the power of compound interest, can add up over the years.
Assuming 3 per cent compound annual return1 ($)
| Monthly contribution | 5 years | 10 years | 15 years | 20 years |
|---|---|---|---|---|
50 |
3,231 |
6,986 |
11,347 |
16,413 |
100 |
6,464 |
13,973 |
22,696 |
32,828 |
200 |
12,928 |
27,947 |
45,393 |
65,659 |
300 |
19,393 |
41,921 |
68,090 |
98,489 |
500 |
32,322 |
69,869 |
113,485 |
164,149 |
800 |
51,716 |
111,792 |
181,577 |
262,640 |
1,000 |
64,646 |
139,740 |
226,971 |
328,300 |
Assuming 5 per cent compound annual return2 ($)
| Monthly contribution | 5 years | 10 years | 15 years | 20 years |
|---|---|---|---|---|
50 |
3,399 |
7,762 |
13,362 |
20,549 |
100 |
6,799 |
15,527 |
26,727 |
41,101 |
200 |
13,600 |
31,055 |
53,456 |
82,204 |
300 |
20,401 |
46,583 |
80,185 |
123,307 |
500 |
34,002 |
77,639 |
133,642 |
205,514 |
800 |
54,404 |
124,224 |
213,829 |
328,824 |
1,000 |
68,005 |
155,281 |
267,287 |
411,031 |
1,2 Rates of return are used only to illustrate the effects of compound growth and are not intended to forecast future values or returns on investments in any mutual or segregated fund. It is assumed that all monthly contributions are made at the beginning of the period.
Asset allocation mixes
The following list of diversified portfolios covers the spectrum of risk and return profiles designed to meet various investment goals.
Conservative
- Income generation
- Emphasis on preserving capital
Moderate
- Income generation
- Long-term growth
- Slightly greater emphasis on fixed income portion
Balanced
- Long-term growth consistent with safety of capital
- Slightly greater emphasis on equities
Growth 
- Long-term growth with little need to generate income
- Increased exposure to foreign equities
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Global diversification
Canada represents less than five per cent of the world stock market capitalization.1 When you consider the fact that over half2 of Canada’s stock market is confined to the financial, energy and materials sectors, if you limit your client’s portfolio to Canadian investments, you may be missing out on a number of world-class opportunities.
1 Source: Source: As per MSCI ACWI weightings as of September 30, 2021.
2 Source: Morningstar Direct as of September 30, 2021.
Mutual fund sector weights – Canadian Equity Category Average vs. International Equity Category Average
Source: Morningstar Direct as at September 30, 2021. For illustration purposes only.
Based on historical performance, a portfolio with a 30 per cent foreign equity component frequently outperforms a portfolio with 100 per cent Canadian equity, while taking on less risk. Therefore, adding foreign equity to your client’s portfolio can help them maximize returns and reduce investment risk.
The growth of a $10,000 portfolio with and without foreign content
30 years (October 1, 1991 — September 30, 2021)
Source: Morningstar Direct as at September 30, 2021. For illustration purposes only. This is based on a hypothetical scenario.
Yield spectrum
While Canadian government bond yields may be low, there’s a world of income out there worth exploring. The chart illustrates the wide spectrum of choices available to portfolio managers looking to build a globally diversified income portfolio.
Sources: Bloomberg as of September 30, 2021.