All the Numbers

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Expected returns and fees

Every investment account in the plan grows at one annual rate. Unless a rate is entered, that rate is the default below. It is the central estimate of a long-run average. Real years run above and below it; Monte Carlo shows how far.

The rules

  • Default: 6.35% a year. This is PWL Capital's expected return for a market-weighted portfolio of 80% equities and 20% Canadian bonds, from its 2026 planning assumptions. For comparison, the same paper gives 6.92% for all equities, 5.73% for 60/40 and 3.58% for all bonds.
  • Nominal. The 6.35% includes inflation. With the default inflation of 2.5%, the return after inflation is about 3.8%; see inflation and today's dollars.
  • Net of fees. PWL's figures already subtract the management expense ratios of the funds that make up the portfolio, so the default is what an investor keeps before tax. A rate entered from a fund's gross performance would need the fee taken off first.
  • Cash is separate. Uninvested cash earns the posted savings rate rather than the investment return; see cash.
  • Distributions. A fund or stock can pay out part of its return as dividends, interest or capital gains, or as return of capital. Each is taxed according to what it is, and a reinvested distribution adds to the cost base; see capital gains and dividends.
  • Fees paid separately. Investment counsel and management fees paid outside the fund are deductible in a non-registered account. Trading commissions are not; they adjust the cost base or the proceeds instead.

What the engine does

  • Applies the rate to every new investment account until a different one is set, and grows the balance through the year at that annual rate.
  • Treats the rate on a registered account as total return, and on a non-registered account as growth in price, taxed when sold.
  • Accepts distributions and separately paid fees as dated events on a non-registered account, but the planner's own accounts do not generate them.

What it deliberately does not

  • It does not add a fee on top of the rate. The rate is already net, so a fee entered separately would be counted twice.
  • It does not vary the return by year in a plain projection. Variation comes from the Monte Carlo and stress tests.
  • It does not split a return into interest, dividends and gains, or deduct fees inside registered accounts.

Connected to

  • "Monte Carlo: many market histories" · The Simulation page runs the plan 500 times with investment returns and home prices drawn at random each year, then shows the spread of net worth and how many runs finish, borrow or run out of money.
  • Auto-allocation · When switched on, money left after spending and your own contributions is placed for you down a priority list — FHSA, then RRSP, then TFSA, then non-registered by default — each account taking what its room allows. Every dollar it moves is shown, by account, on each month and year.
  • Capital gains and the adjusted cost base · Selling an investment for more than its adjusted cost base is a capital gain, and half of it is added to taxable income in the year of the sale. Growth that has not been sold is not taxed.
  • How dividends are taxed · Canadian dividends are grossed up by 38% (eligible) or 15% (other), taxed as income, then reduced by a federal and Ontario dividend tax credit. The credits make dividends tax less than interest at the same income.
  • Inflation and today's dollars · The default inflation rate is 2.5% a year. A future dollar amount can be shown as is, or divided by (1 + inflation) for each year to show what it would buy today.
  • Money you have not told the plan to invest · Income the plan does not spend and you have not allocated to an account is held as cash, earning the posted savings rate. It is not swept into an investment account, and it never over-fills a registered one.
  • Which assumption matters most · The sensitivity chart moves one assumption at a time, down and up by a fixed step, and ranks them by how much the final net worth in today's dollars changes. Inflation is often the largest bar because it moves much more than one number.

Sources