High Returns Unlikely to Last

High Returns Unlikely to Last

By James Parkyn - PWL Capital - Montreal

Investors have had an incredible ride in the past decade. Stock markets soared, portfolios swelled.

It’s tempting to get complacent and expect this to be the new normal. Some investors may come to expect double-digit stock gains year after year. They may even reduce their savings or build lofty expectations of an early retirement.

Tap the breaks—the coming years are likely to be less generous.

4.5% real return on equity

Twice a year, PWL Capital updates our long-term view for how stocks and bonds are expected to perform over the coming 30 years. Our latest update found that investors can expect a 4.5% annual return for global stocks after inflation, and 1% for bonds.

The figure for stocks is far lower than the 8-12% real returns that many investors and advisors expect, according to a recent Natixis survey.

Such rosy investor expectations aren’t realistic, says PWL Senior Researcher Raymond Kerzérho. He co-authored the PWL update and discussed the findings on our latest Capital Topics podcast.

7% return for Canadian stocks before inflation

Raymond cautions that his figures aren’t a prediction, but rather a planning assumption. We use these numbers to help prepare long-term financial plans and retirement projections for our clients. The figures are also subject to a substantial margin of error. No one can predict the future!

That said, Raymond’s nominal return estimates are:

• Bonds: 3.5%

• Canadian stocks: 7%

• U.S. stocks: 6.5%

• International stocks: 7.3%

• Global portfolio of Canadian, U.S. and international stocks: 7%

Raymond also expects long-term inflation of 2.5%. In other words, real returns for equities are likely to be far below what investors and advisors expect.

“Dangerous delusion”

Equities are likely to face headwinds because valuations are historically high. The S&P 500 has returned 15% annually over the past decade, “far in excess of its long-term annualized return of 10.3%,” Wall Street Journal columnist Jason Zweig recently noted.

Taking high returns for granted can leave you with “a severe shortfall” if markets stumble, Zweig said.

The problem, he said, “is that a booming stock market breeds complacency. Huge returns make a comfy retirement for everyone seem within reach, without effort or sacrifice. And that’s a dangerous delusion.”

Homes aren’t a magic exception

Real estate isn’t immune from overly lofty expectations. Most people have a lot of money tied up in their principal residence. But in another eye-opener, Raymond expects a long-term annual price appreciation of just 1% for houses after inflation. This doesn’t even include home ownership costs such as taxes, insurance and maintenance.

The 1% figure may come as a surprise to Canadians used to skyrocketing house prices. As Raymond points out, the recent outperformance has been the exception, not the rule.

“When compared to stocks over the long term, housing does not compare well,” he told our podcast. “If you account for inflation and all the money you reinvested in it, the return on a personal residence is not great.”

Peers are more pessimistic

PWL isn’t the only one warning of lower future returns. In fact, our expectations are more optimistic than those of other major investment firms.

As Raymond noted last year, our long-term expectations for Canadian bonds and most equity markets are higher than those of four other firms we studied.

“Listeners may think we’re too conservative with our expected return assumptions, but in reality, we’re a bit more optimistic than some major investment firms,” Raymond said.

Investors expect 10.7% real returns

The sobering warnings stand in sharp contrast to investor expectations. Buoyed by years of high-flying stock gains, investors expect 10.7% annual after-inflation returns over the long term in stocks globally, according to the 2025 Natixis Global Survey of Individual Investors.

Expectations are even higher for U.S. stocks—12.6% annually. Even advisors expect 8.3% after inflation, the survey found.

“I was shocked when I read that,” Raymond said of the survey results. “That’s nonsense…. A 10.7% real return is not going to happen. Maybe for short periods it can happen, but in the long run, no way….

“It is your advisor’s job to educate you about the expected return of your portfolio. If your advisor has not set reasonable expectations with you, I think you should consider a change.”

Don’t steer by the rear-view mirror

The final verdict: The past doesn’t predict the future. You don’t drive a car by looking in the rear-view mirror. You shouldn’t make investing decisions that way either.

Be disciplined about sticking to your long-term investing plan. You or your advisor should periodically rebalance your holdings to align with your target allocations. Enjoy the gains of the past, by all means. But don’t build your future on them continuing.

Model portfolios and market statistics can be found on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website. Also find more commentary and insights on personal finance and investing in our podcast, past blog posts and eBooks.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Stay informed and inspired. Subscribe to our Bi-Weekly Newsletter for the latest podcasts, blogs, and James & François’ top reads from the past two weeks.

2025 Mid-Year Market Check-In: Staying the Course Paid Off

2025 Mid-Year Market Check-In: Staying the Course Paid Off

By James Parkyn - PWL Capital - Montreal

We’re halfway through 2025, and there’s one thing we can say for sure: It’s been anything but dull.

Between the epic market swings, tariff soap opera and geopolitical tensions, it was a masterclass in unpredictability and managing emotions. Investors saw one of the most dramatic equity market selloffs in recent memory, but those who stuck it out also enjoyed a spectacular rebound.

President Trump got the ball rolling by announcing aggressive tariffs against major trading partners in April. His “Liberation Day” economic strategy shocked investors due to its scale, speed and unpredictability.

Within days, trillions of dollars in equity value vanished across the globe, as François and I discuss in our latest Capital Topics podcast.

Double-Digit Selloffs

Canada’s S&P/TSX Composite Index plunged 12.2%, the MSCI EAFE developed-market index lost 13.2% and the S&P 500 Index in the U.S. shed 14.7%.

(To see market data and our model portfolios, visit our Capital Topics website’s resources section or our team’s page on the PWL Capital website. Our model portfolios can be a good tool for readers to evaluate their own results.)

Especially significant was the negative reaction of the bond market. Normally, when stocks fall, investors turn to the safety of government bonds, which pushes yields down and bond prices up.

But this time, the opposite happened. Yields increased and bond prices went down. Investors were concerned that the tariffs would spark inflation—fears amplified by growing U.S. federal deficits.

Market rollercoaster

Reports suggested that the bond yield spike is what forced President Trump to pause the tariffs only a week after they were announced. This resulted in the biggest single-day equity rally since 2008. The S&P 500 Index surged 9.5%, the Nasdaq jumped 12% and the Dow Jones Industrial Average gained 8%.

This rollercoaster ride is a perfect example of why we don’t try to time the markets. If an investor had sold when the tariffs were announced and didn’t reinvest when markets bottomed, they would have seriously damaged their portfolio.

It’s a great reminder that reacting emotionally can be costly and undermine your investment performance. As we’ve said many times over the years, market timing is not a strategy our readers should follow.

Many central banks shift to easing

As though to underscore this lesson, investors were tested with plenty of alarming news, including the war in Ukraine and the U.S. attack on Iran’s nuclear facilities. The latter caused a 16% spike in the price of crude oil, followed by an equally sharp drop once a ceasefire agreement eased market fears.

Amid this chaos, many central banks are cautiously shifting to easing to support growth as inflation moderates. In Canada, inflation sits at 1.9% versus 2.7% in June last year. This helped the Bank of Canada reduce its benchmark interest rate from 3.25% at the year’s start to 2.75%. Canada’s economy is growing, albeit at a slow pace—1.3% year-over-year.

In the U.S., the situation is somewhat different, with inflation rising to 2.7% in June, prompting the Federal Reserve Board to keep the fed funds rate unchanged so far in 2025 at 4.5%.

Yields stayed high, equities gained

Turning to the markets, fixed-income yields in Canada and the U.S. remain well above average. The 10-year government of Canada bond yield was roughly 3.3% at the end of June, while the U.S. 10-year Treasury note yield was 4.4%. Relatively high yields continue to be good news for investors with a large bond weighting in their portfolio.

Stock markets have shown surprising resilience given the geopolitical and tariff turbulence. In Canada, the S&P/TSX Composite Index shot up 10.2% in the first half of the year.

The strong performance particularly stands out because Canada has been at the centre of President Trump’s negative rhetoric on tariffs.

Dramatic swings in U.S. equities

Markets in the U.S. saw dramatic swings, with the S&P 500 and Nasdaq both in bear market territory in April after losing more than 20% since their prior highs. But then came the rebound, and the S&P 500 has now hit new all-time highs.

After all this volatility, the total U.S. market was up 5.8% year-to-date at the end of June in U.S. dollar terms. In Canadian dollars, it’s up just 0.2% because of strong gains for the loonie versus the greenback.

The U.S. dollar’s decline this year has been another big story. The greenback has fallen 10.8% against a basket of major currencies due to the trade instability, U.S. deficit concerns and other factors.

Meanwhile, international equities have performed well. The MSCI EAFE developed-market index has gained 13.2% in Canadian dollars year-to-date, while emerging market large and mid-cap stocks rose 9.5%.

Discipline and patience pay off

Overall, investors had plenty of reasons to be nervous this year so far. But those who stayed invested with diversified global portfolios were handsomely rewarded.

We saw once more that the markets are a great teacher. They show time and again that discipline and a patient focus on the long term pay off.

Find market statistics, model portfolios, more commentary, past blog posts, eBooks and podcasts on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and on our Capital Topics website. 

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Stay informed and inspired. Subscribe to our Bi-Weekly Newsletter for the latest podcasts, blogs, and James & François’ top reads from the past two weeks.

10 Investing Insights From 125 Years of Market Data

10 Investing Insights From 125 Years of Market Data

By James Parkyn - PWL Capital - Montreal

What do railroads in 1900 and tech giants in 2025 have in common? They both shaped markets—and remind us how much things can change.

The UBS Global Investment Returns Yearbook 2025 uses 125 years of history to show why diversification, discipline and a long-term mindset pay off.

The UBS Yearbook, published in collaboration with academics from London Business School and Cambridge University, doesn’t try to forecast the future. But it gives fascinating historical context for making better decisions today.

Global diversification pays off in 2025

One of the central messages of the 2025 Yearbook is the importance of diversification—a theme we highlight often in our blogs and podcasts. Our strategy of being globally invested paid off so far in 2025, as U.S. stock markets have faced much more volatility than equities in other countries.

As of April 30, 2025:

• The U.S. total market was down 9.2% year-to-date and off 14.2% from its February peak.

• Meanwhile, Canada’ s S&P/TSX Composite Index was up 1.4%.

• International developed market equities gained 7.2%.

• Emerging market equities were flat at 0.1%.

(See our PWL Market Statistics page for additional data.)

10 insights for successful investing

While U.S. equities outperformed during the past 15 years, many investors questioned the value of being globally diversified. This year, we saw the benefit. Diversification may not always pay off handsomely in the short term, but over a longer horizon, the evidence shows it works.

That perspective is reinforced by the UBS Yearbook’s 10 key insights for successful investing drawn from 125 years of market history.

1. Markets constantly change

   Railroads dominated equities at the start of the 1900s, accounting for 63% of the U.S. stock market. Many of today’s largest industries—energy (except for coal), technology and healthcare—were almost totally absent in 1900.

   The lesson: Nobody knows the stock market winners of the future—so don’t try to chase them. As Warren Buffett says in his Fourth Law of Motion, “For investors as a whole, returns decrease as motion increases.”

2. Equities have strongly outperformed

   Since 1900, U.S. equities have returned 9.7% annually, far outpacing bonds (4.6%) and T-Bills (3.4%). Meanwhile, inflation was 2.9% per year.

3. Real bond returns were modest

   Government bonds have offered low returns after inflation over the long term. Their annualized real return was just 0.9%, according to data from 21 markets since 1900. Bonds were more volatile than T-Bills (13.2% standard deviation versus 7.5%), but less than equities (23.0%).

4. Equities don’t offer a smooth ride

   Equities, as we know, are volatile. That’s why we expect to get a higher return than investing in safer assets.

   The U.S. equity real return was 8.5% on average, but this included six years with annual returns below negative 40%. There were also six years with gains over 40%. Volatility is the price of admission for these higher returns.

5. Patience was rewarded

   Major bear markets—like the tech crash or the 2008 financial crisis—can last years. It takes patience to stay the course. In the four great U.S. equity bear markets since 1900, stocks lost from 52% to 79% peak-to-trough. The recoveries to pre-crash levels took 5.3 to 15.5 years.

6. Diversification across asset classes helps

   Stocks and bonds have a low long-term correlation—just 0.19 in the U.S. This means owning both is a good way to reduce portolio risk. Keep in mind, however, that over shorter timeframes, this correlation can increase or decrease. We should always be mindful of the longer-term perspective.

7. Diversification within equities also matters

   Globally diversified portfolios have generated higher risk-adjusted returns over the past 50 years than investing in only domestic assets in the vast majority of countries. International diversification works!

8. Inflation impacts real returns

   While equities beat inflation over time, they don’ t always hedge it well. Returns tend to be strongest when inflation is low and stable.

9. Gold and commodities can hedge inflation—but with limits

   While these assets can help, it’s difficult to find products that are retail investor-friendly. Institutional investors may get benefits from adding this asset class.

10. Factor investing has worked—but requires patience

    Size, value, profitability and other factors have outperformed over longer horizons. Still, performance varies across cycles, and some styles can lag for years.

How to sum up all these insights? I think the message is that diversification and discipline are key to investing success. While diversified portfolios may lag at times, they help manage risk and are rewarded over time. This includes owning broadly diversified funds to ensure we own the winning stocks of tomorrow.

Equity investors earn a premium because they’re willing to withstand volatility and drawdowns. It’s easier to stay disciplined if you have a long-term focus and a well-crafted portfolio that aligns with your risk tolerance and personal goals. As investment manager Ben Carlson recently wrote, “You can more easily lean into the pain when you know what you’re buying, holding and why.”

Success in investing doesn’t come from market timing, stock picking or being swayed by the trend of the day. As 125 years of data show, long-term thinking is what matters.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Read more commentary and insights on personal finance and investing in our past blog posts, eBooks and podcast on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and on our Capital Topics website. 

Lessons of 2024—five truths for investors

Lessons of 2024—five truths for investors 

By James Parkyn - PWL Capital - Montreal

What the past year revealed about forecasts, timing the market and diversification  

The markets are a wonderful teacher. If we pay attention, they provide fascinating lessons about investing.

Our friend and author Larry Swedroe put it nicely. “With great frequency, markets offer remedial courses covering lessons they taught in previous years,” he wrote.

“That’s why one of my favorite sayings is that there’s nothing new in investing, only investment history you don’t know.”

With these wise words in mind, let’s take a look at our five main lessons from 2024. Spoiler: It may not come as a surprise that all of this year’s lessons can be found in our lessons from 2022 and 2023.

Lesson #1: No one can forecast the markets.

Market forecasters from major financial institutions had a terrible record last year. This is nothing new. They also had a poor record in 2023 and the year before that. The lesson here: Don’t pay attention to the annual caravan of  forecasts and outlooks for the coming year.

It is true that occasionally a handful of forecasters can get it right—generally thanks to sheer luck. Even a broken clock is correct twice a day. That doesn’t mean those analysts’ predictions will be correct in future. No one can consistently predict the markets. Our advice is to tune out the noise and stay focused on your long-term investing success.

Lesson #2: Valuations don’t help you time the markets.

After two years of outstanding back-to-back gains for equities, some investors have grown nervous about excessive valuations. But such past periods don’t give solid clues about what to expect this year.

As markets hit repeated new highs last year, they continued to soar—hitting higher highs again and again. Research shows that stock markets don’t necessarily underperform after new highs. “There are no crystal balls allowing us to foresee exactly when each shift will occur [from outperformance to underperformance],” Larry Swedroe recently wrote.

That said, it is a good idea to periodically review your holdings and rebalance them to stay aligned with your target allocations. Speak with your advisor about this process. At PWL, we have such conversations regularly with our clients.  

Lesson #3: Active management is a loser’s game.

Just 4% of companies were responsible for all stock market wealth creation above risk-free Treasuries from 1926 to 2023, according to an eye-opening study by Arizona State University finance professor Hendrik Bessembinder.

How do you pick the winning stocks of the future? You can’t. “Picking stocks is more like gambling than investing,” says David Booth, co-founder of Dimensional Fund Advisors.

But you don’t need to find the winners if you simply buy the whole market through an index fund. That way, you can be sure to benefit no matter which companies gain. As Vanguard founder Jack C. Bogle puts it: “Don’t look for the needle, buy the haystack.”

Lesson #4: Diversification works.  

U.S. stocks outperformed their international and Canadian counterparts in 2024. Does that mean diversification no longer works? Of course not. Some sector or country always does better in any given year. We just can’t know ahead of time which one.

Instead of rolling the dice, we must remember why we diversified our portfolios in the first place—to reduce risk while maintaining long-term expected returns.

Research supports this approach. In a paper titled “International Diversification—Still Not Crazy After All These Years” in The Journal of Portfolio Management, the authors concluded that international diversification “does a pretty great job of protecting investors over the long term…. The long-run case for it remains relevant. Both financial theory and common sense favor international diversification.”

Lesson #5: Sticking to your plan paid off in 2024. 

Sticking to your investing plan pays off. Investors who held onto their broadly diversified portfolios through the volatility of recent years were handsomely rewarded in 2024.

The lesson? Invest based on long-term planning—not emotions. Imagine if you had quit the markets early because of the volatility. “Pessimism always sounds smarter than optimism,” Morgan Housel, author of the book The Psychology of Money, wrote, “because optimism sounds like a sales pitch while pessimism sounds like someone trying to help you.”

The markets in their wisdom are continually providing valuable lessons. It’s up to us to notice them and learn from them. This allows us to greet with confidence and discipline whatever may come in 2025. 

Read more commentary and insights on personal finance and investing in our past blog posts, eBooks and podcast on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and on our Capital Topics website.  

TAKE ADVANTAGE OF THE EXPERTISE OF JAMES PARKYN, Portfolio Manager at PWL Capital Montreal to determine the best solution for you.

2024 Market Review

2024 Market Review 

By James Parkyn - PWL Capital - Montreal

Stellar Gains, Missed Predictions and Market Surprises  

Since this is my first blog of the year, I’d like to wish readers a happy, healthy and prosperous year in 2025. In keeping with tradition, let’s kick off the year with a look at how global capital markets performed in 2024. 

The short answer: They did exceptionally well. The last two years marked the first time since 1997-98 that the S&P 500 Index had two consecutive years of returns above 20%. All the stock markets we invest in saw double-digit returns.  

(You can find market statistics in the resources section of our Capital Topics website and on our team’s page on the PWL Capital website.) 

Pundits got it wrong… again 

This sunny result was certainly not what was predicted by pundits at the start of 2024. Many warned of significant market headwinds, citing inflation and geopolitical worries such as the war in Ukraine, the Middle East conflict and Chinese threats over Taiwan. It didn’t help that the U.S. was headed into a highly divisive presidential campaign. 

But as readers of this blog will know, it’s nothing new that pundits were wrong. On the economic front, central banks proved successful in taming inflation while also managing to avoid triggering recessions.  

Decent returns for bonds 

In fixed-income markets, Canadian bonds experienced decent returns as the Bank of Canada lowered its benchmark rate and bond prices rose. (Bond prices rise when bond yields go down.)  

Canadian short-term bonds were up 5.7% for the year, while the total bond market, which holds longer-dated maturities, was up by 4.23%.  

The Canadian short-term bond index currently yields 3.3%, while the total bond market yields around 3.7%.  

Banner year for equities 

Equities saw a banner year in 2024. In Canada, the S&P/TSX Composite Index shot up an impressive 21.65% and hit multiple new record highs. It was a broad-based performance, too; 10 of the 11 sectors saw gains. As in 2023, information technology led the way with a spectacular 45.1% return. 

Unusually, value outperformed growth. Large and mid-cap growth stocks gained 19.9% versus 26.0% for value stocks. Small-cap stocks also outperformed large and mid-cap stocks with a performance of 21.91%. 

We highlight value and small-cap stock performance because we tilt toward these asset classes in our clients’ portfolios due to historic data showing their expected higher long-term returns. 

Stellar U.S. equity gains   

U.S. equities also saw stellar gains. The total U.S. market soared 23.81% in U.S. dollars. It did even better in Canadian dollars—up 34.31%—because our currency lost ground against the greenback. 

The growth vs. value story was reversed south of the border. Large and mid-cap growth stocks were up a remarkable 44.67% last year, while value stocks generated a still very respectable 24.07% (both in Canadian dollars).  

In 2024, the big story in the U.S. was the surge of momentum in artificial intelligence stocks. Communication services and technology were the top-performing sectors, led mostly by the so-called “Magnificent Seven” stocks.

Mega-gains for “Mag 7” 

The “Mag 7” are the seven largest U.S. stocks by market capitalization: Alphabet (Google), Amazon, Apple, Meta Platforms (Facebook), Microsoft, NVIDIA and Tesla.  

These mega-companies skyrocketed on average 60.5% last year. The top gainer was NVIDIA (up 171%), while the worst was Microsoft (12%).  

The market cap weight of the “Mag Seven” has only continued to grow. They now represent 34% of the S&P 500 Index and close to 19% of the MSCI All Country World Index.   

International equities also did well 

International developed markets didn’t do as well as North American equities, but still had a good year. Large and mid-cap stocks returned 12.63% in Canadian dollars. International large and mid-cap value stocks outperformed growth, gaining 14.65% compared to 10.7% for growth. Small cap stocks also did well but trailed large and mid-cap stocks with a performance of 10.45%. 

Emerging markets did better, with large and mid-cap stocks returning 17.22%. Large and mid-cap growth outperformed value, and small cap stocks trailed large caps.  

Lost decade ahead? 

The exceptional returns and high mega-cap concentration have raised questions about whether we’ll see below-average equity returns in 2025 and beyond. Some have predicted a “lost decade” ahead. 

Ben Carlson, in his blog A Wealth of Common Sense, found that the S&P 500 Index has seen three instances of back-to-back returns above 25% since 1928. It happened in 1935-36, 1954-55 and 1997-98. 

The subsequent year’s results were all over the map. In 1937, the index lost 35%, in 1956 it gained 7% and in 1999 it shot up 21%. “Terrible, decent and great. Not helpful,” Carlson concluded. 

Stick to the plan with discipline 

We may not be able to predict the future, but we can continue following our long-term strategy of diversified investing using broad index funds. After outsized gains in any asset class, it’s also a good idea to take profits and rebalance to stay aligned with your target allocations. 

Sticking to your investment strategy with discipline is the best way to weather any coming doldrums and benefit most from market advances. 

Read more commentary and insights on personal finance and investing in our past blog posts, eBooks and podcast on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and on our Capital Topics website.  

TAKE ADVANTAGE OF THE EXPERTISE OF JAMES PARKYN, Portfolio Manager at PWL Capital Montreal to determine the best solution for you.