Foreign markets are expected to continue to outperform Canadian equities in the long term, according to updated assumption guidelines from the Financial Planning Standards Council (FPSC) and the Institut québécois de planification financière (IQPF).

The Projection Assumption Guidelines help financial planners make long-term financial projections (10 years or more) that are free from potential biases or dispositions.

Canadian equities are projected to return 6.4%, compared to 6.7% for foreign developed market equities and 7.4% for emerging market equities. Fixed income returns are projected at 3.9%, with short-term returns at 2.9%.

A reduction in projected fixed income returns accounts “for the appreciation in historical bond prices that cannot be explained by changes in interest rates,” a release said.

Other changes announced Tuesday include:

  • inclusion of the S&P 500 Composite Index in the calculation of the guidelines for Foreign Developed Market Equities; and
  • the addition of the S&P 500 Composite Index for U.S. equities in the Historical Rates and Standard Deviations 50-year data.

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“An important facet of the financial planner’s work is to make a variety of projections (retirement needs and retirement income, insurance needs, children’s education funding needs, etc.),” says the document. “In making projections, financial planners are bound by method, rather than results. The purpose of this document is to map out the assumptions to use in the preparation of these projections.”

The updated inflation rate is 2.0%. Return rates are as follows:

  • Short-term: 2.9%
  • Fixed income: 3.9%
  • Canadian equities: 6.4%
  • Foreign developed market equities: 6.7%
  • Emerging market equities: 7.4%
  • YMPE or MPE growth rate: 3.0%
  • Borrowing rate: 4.9%

The guidelines were created from a variety of reliable and publicly available data sources, including the CPP, QPP and historical data.

Read the Projection Assumption Guidelines here.

The document is accompanied by an addendum with the data sources on which the guidelines are based, along with the specific calculations for inflation and rate-of-return guidelines.

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