Saving & investing
Return assumptions: make the uncertainty visible
Choose and label illustrative inputs without turning a few scenarios into a confidence band.
The key idea
A return assumption is an input to a calculation. It should state the holdings, horizon and treatment of fees, tax and inflation. Several chosen rates show sensitivity; they do not supply probabilities or a statistical confidence band.
Ask what the rate describes
Is it interest on a deposit, a total investment return including income, or a historical average for a particular portfolio? Is it before or after fees? A source needs a date, relevant holdings and a period. Past performance does not establish the future. General investing guidance points to goals, costs, tax and risk, rather than a universal expected return. FCAC: basics of investing
Nominal and real answer different questions
Nominal dollars are the amounts shown in the future. Real purchasing power adjusts for price changes. The one-period real-return relationship is (1 + nominal return) ÷ (1 + inflation) − 1. Simply subtracting inflation is an approximation. Personal tax and fees must be handled consistently before making a spending comparison.
Use sensitivity without invented certainty
Try a lower or zero growth case alongside any positive case, and separately think about losses or a shorter horizon. Label exactly what changed. A deterministic tool follows the entered assumptions; it does not assign a likelihood to the path. A favourable curve does not establish that the underlying investment suits the goal. OSC Investor Office: why risk matters
Document before using the result
- Record the source, date, relevant assets and period behind an assumption.
- State whether the return includes fees, income reinvestment, tax and inflation.
- Keep deposit timing and starting money constant when comparing rates.
- Write what the tool cannot model, such as a market-loss path or actual withdrawal tax.
See it in practice
A one-year sensitivity and purchasing-power check
| Nominal return | Ending nominal balance |
|---|---|
| 0% | $1,000 |
| 3% | $1,030 |
| 6% | $1,060 |
These rates have no assigned probabilities. In the 3% case, with separately assumed 2% inflation, $1,030 ÷ 1.02 = $1,009.80 in starting-year purchasing power, rounded to cents. The real return is about 0.98%, not exactly 1%. Inflation is also an assumption.
Check your understanding
Do three selected rates form a confidence band?
No. Without a probabilistic model and stated coverage, they are three illustrative outcomes. Results outside them remain possible.
A useful next step
Attach a short assumption note to your next RRSP Growth illustration. That tool projects an account balance and excludes tax-refund reinvestment, withdrawal tax, fees, inflation and contribution-room verification.
Inspect the sources
Primary references checked September 18, 2026. A source check is not professional financial or legal review.
- FCAC: basics of investingConceptual; checked 2026 · Canada; provincial securities regulation
- OSC Investor Office: why risk mattersConceptual; updated January 2026 · Ontario regulator educational resource; general investment concepts