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.

Time to reduce U.S. equity exposure?

Time to reduce U.S. equity exposure?

By James Parkyn - PWL Capital - Montreal

Is it time to scale back on U.S. stock holdings? Investor concerns have intensified about equity market performance and tariff-related volatility south of the border.

The U.S. total market gained a modest 4.2% in Canadian dollars in 2025 through the end of July.

This was well behind vigorous rallies in many other countries:

• The Canadian total market has soared 12% year to date.

• International developed large and mid-cap stocks have shot up 13.5% in Canadian dollar terms.

• Emerging market large and mid-cap stocks have surged 13.6% in CAD terms.

(See our Market Statistics page for more data.)

Winning streak over?

The U.S. slump is especially striking because Wall Street handily beat international stocks for most of the period since the 2008-09 financial crisis.

The U.S. total market returned about 13.5% annually between 2010 and 2024, vastly better than international stocks, which gained an underwhelming 4.8%, according to Morningstar Direct.

Does this year’s shift mean the era of superior U.S. returns is over? Should we reallocate away from U.S. stocks?

Compelling case for diversification

The short answer is no. As we said in our podcast on the same topic, there is a compelling case for diversification within stocks. Our model allocates 20% to Canadian stocks, 50% to the U.S. and 30% to international stocks.

The balance between U.S. and international stocks is in line with their share of global market capitalization.

As U.S. or other stocks have outperformed, we have rebalanced to maintain these target allocations.

U.S. equities still vital

Changing the model now smacks of market timing or trying to forecast the future. And the evidence is overwhelming this doesn’t work.

Regardless of any short-term underperformance, the evidence is clear that U.S. equity investments should be a major part of our clients’ portfolios.

As we noted in May, U.S. equities have returned an impressive 9.7% annually since 1900, according to the UBS Global Investment Returns Yearbook 2025.

“Never bet against America”

Warren Buffet famously put it like this in his 2020 letter to shareholders: “Despite some severe interruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: Never bet against America.”

Excellent U.S. returns are due in large part to the strong U.S. dollar and tech boom. This includes stellar gains in the “Magnificent Seven” mega-stocks, which we’ve discussed previously. As well, investors have proven willing to pay higher multiples for U.S. stocks.

But high returns come with a price: volatility. Since 1900, U.S. equities have seen six years with annual returns below negative 40%. Patiently waiting out these drawdowns is crucial if we want to enjoy the longer-term gains.

U.S. valuations at historic extreme

What can we expect from U.S. stocks in coming years? Some analysts predict slowing U.S. earnings growth in coming years. Others say U.S. equities could continue to underperform due to excessive valuations, even despite this year’s trailing results.

Valuations may reflect “overly optimistic expectations” about future growth and the U.S. return edge, according to investment firm AQR Capital Management.

“By the end of 2024, relative valuations were at a historically extreme level, and we argue that some mean reversion is a sounder assumption than extrapolation of further richening,” AQR said in a report.

Investors “should know that the US has underperformed the rest of the world for extended periods, for example the decades of 2000s, 1980s, and 1970s.”

International diversification paid off

But as we know, it’s notoriously difficult to forecast the markets. Analysts consistently get it wrong.

What we do know is that international diversification has paid off. This year’s developments in stock markets simply confirm that.

The UBS Yearbook 2025 provided more evidence. It found that globally diversified portfolios have generated higher risk-adjusted returns over the past 50 years than investing in only domestic assets in almost all countries.

Discipline brings peace of mind

Disciplined—relying on a broadly diversified long-term investing strategy and not chasing trends—allows us to capture returns when leadership changes.

Patience is also key. Avoid letting short-term swings or headlines dictate your moves. Markets reward those who stay invested from one cycle to the next.

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.

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.

55 Years of Data: Staying Invested Paid Off

55 Years of Data: Staying Invested Paid Off

By James Parkyn - PWL Capital - Montreal

Is the reward for long-term investing worth the wait? The numbers overwhelmingly say yes. Over the past 55 years, a dollar invested in a diversified international equity portfolio would have grown to over $16 after inflation.

That’s a return of more than 1,600%.

This was one of the remarkable findings of PWL Capital Senior Researcher Raymond Kerzerho in two recent blog posts and our Capital Topics podcast.

“The stock market is a money-multiplying machine for long-term holders of globally diversified equity portfolios,” Raymond says.

“Because the turning points between market cycle phases are largely unpredictable, the only reliable way to invest profitably is to stay invested over decades, ignore distractions from media news, and let returns compound.”

Takeaways for investing success

Raymond studied more than half a century of market history and distilled these core lessons for growing wealth:

·         Stay invested. This means avoiding active trading.

·         Be patient and think long term.

·         Allocate a substantial amount to equities.

 Raymond evaluated five portfolios to compare their returns. He found that a globally diversified equity portfolio had the best gains.

A portfolio of 30% Canadian stocks and 70% global ex-Canada markets delivered 5.19% in annualized real (after-inflation) gains from 1970 to 2024. A dollar invested in such a portfolio would have become $16.17. (Foreign withholding taxes and fund fees were factored in to simulate an actual investor experience.)

The downside: lots of stomach-churning fluctuation. At 12.88%, the volatility of this portfolio was highest of all those evaluated.

Bond gains unlikely to repeat

The least gains, unsurprisingly, came from a fixed-income portfolio fully invested in Canadian bonds. But even bond investors fared quite well. The annualized real return was 3.32% with a final real value of $6.03 for each dollar invested in 1970. Volatility was less than half that of equities—5.94%.

Raymond also evaluated three mixed portfolios with various combinations of stocks and bonds: 40/60, 60/40 and 80/20. These all had returns and volatility between those of the stock- and bond-only scenarios.

Raymond notes that the “very high” real return of Canadian bonds was unusual and unlikely to repeat in coming years. It was more than double the average return for global government bonds since 1900 and due in large part to the decline of Canadian bond yields and inflation from 1982 to 2022.

“Investors should not expect this type of performance to repeat,” Raymond writes. “Investors who seriously want to accumulate wealth need a substantial equity allocation.”

Let the market work

The key lesson is to “let the market do its job,” he says. “Some people will scoff at the notion of staying invested for 55 years. But even over 10 years, investors sometimes doubled their purchasing power. Think about it. Investors did not work for that money. The market did the work. All investors had to do was defer consumption and accept that volatility is inevitable.”

How much volatility? Markets experienced six bear markets (a 20%+ real decline) in the past 55 years. In other words, investors endured 1.1 such declines per decade on average. This included two “severe” bear markets (a loss of over 40%)—one during the 1973-73 oil shock and one during the 2000-2003 dot-com crash.

Bear markets lasted 21 months on average, with an average decline of 34% (calculated on a monthly basis).

63% of time in bear market or recovery

The recovery to pre-decline levels took 49 months on average. During this time, markets gained an average of 57%.

Interestingly, bear markets and recovery periods made up 63% of the time from 1970 to 2024. This means investors spent nearly two-thirds of their time either losing money or recovering their losses.

What happened after markets recovered to their pre-decline highs? This was where the benefits of patience really paid off. Markets continued to rise on average 41 months, returning 79%.

Bear markets are “a normal part of investing”

Raymond’s conclusion? “Investors should hold on to their portfolio and expect bear markets as a normal part of investing,” he said in our podcast.

“Successful investors tolerate long periods of minimal or even negative returns. These periods are the entry price to join the club of successful long-term investors.”

Those who stick with a diversified long-term investing plan are handsomely rewarded by compounding.

“Investors who benefited from this compounding of returns refrained from actively trading and let the market do its job,” Raymond says. “Trading interrupts the compounding of returns. Investment banks and trading platforms make money from your active trading, not you.”

If you jump ship, you risk locking in losses and losing out on the benefits of the inevitable recovery and expansion.

As Raymond concluded, “Just rebalance, never bail out. Your portfolio is there for life. It isn’t a temporary thing.”

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.  Find PWL Senior Researcher Raymond Kerzerho’s blogs here and here and the podcast here.

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.