Why Passive Investing Still Beats Active

Why Passive Investing Still Beats Active

By James Parkyn - PWL Capital - Montreal

If you read this blog, you know the evidence about active versus passive investing. It consistently shows that the vast majority of actively managed funds fail to beat the market over the long run.

The reasons are simple. It’s very hard to time the market and pick stocks that will outperform. Even when an active manager makes some good calls, it’s even rarer to do so consistently over the long run, especially as higher fees gobble up gains.

The most striking data about this comes from the annual SPIVA reports on actively managed funds. They show year after year that actively managed funds lag the market.

98% of funds underperformed

In 2024, the report found that a whopping 98% of multi-cap funds underperformed the S&P 1500 Composite Index over the prior 10 years.

Investors have heeded all this evidence. U.S. active equity mutual funds saw over $1 trillion in net outflows in 2025—the 11th consecutive year—according to a report by analyst Larry Swedroe.

Meanwhile, passive equity exchange-traded funds attracted more than $600 billion.

Market efficiency being eroded?

Despite the data, advocates of active management haven’t given up. They’re now making an interesting new argument—claiming that the net outflows may actually help stock pickers.

“The narrative goes like this,” Swedroe wrote about these claims. “As more investors abandon active management for passive index funds, price discovery will deteriorate, markets will become less efficient, and opportunities for skilled stock pickers will multiply…

“There’s just one problem: reality refuses to cooperate.”

Swedroe noted that if the thesis were correct, the steady outflow of funds quitting active management should have led to improved performance against benchmarks. “Instead, we’ve seen the opposite,” he said.

The other side of the trade

Who is correct? Is active investing is getting new life? Has the rise of passive investing indeed imperilled market efficiency?

Weighing into the debate is Morgan Stanley with a new report titled, “Who Is On the Other Side?” The authors are well-known Columbia Business School adjunct professor of finance Michael Mauboussin and his long-time collaborator Dan Callahan.

They look at the question through a unique perspective that’s sometimes overlooked. When you’re buying a stock, there’s a seller on the other side. It’s useful to ask yourself: What does the seller know that I don’t? The same is true if you’re selling.

Professionals help boost market efficiency

Who then is on the other side of a trade in today's markets? These are mostly institutional players, retail investors, sovereign wealth funds, day traders, hedge funds and other professionals. All these actors help make the market more efficient.

Before we go further, let me explain market efficiency. This is the notion that markets accurately reflect available information. In other words, an investor can never get an edge because markets have already priced in all relevant information.

The inventor of the idea, Nobel Laureate Eugene Fama of the University of Chicago, broke it down into three levels.

Weak market efficiency means prices reflect all past data. In semi-strong efficiency, prices reflect all publicly available information. Strong market efficiency means prices reflect all available information, including private data.

Act as though markets are perfectly efficient

In over 25 years of experience as portfolio managers at PWL Capital, we can safely say markets are not perfectly efficient. Fama agrees. At the same time, his view is it’s in your best interest to act as though the market is perfectly efficient.

In other words, assume you have no edge. We at PWL agree with this.

Traders of all sorts are always looking to find pricing inefficiencies. This is the basis of trying to pick stocks and time the markets. But as Mauboussin and Callahan point out, if you want to beat the market, you need a competitive advantage over other market participants.

Every time you buy or sell a stock, someone else is on the other side of the trade. To beat them, you need an edge over them.

2% of companies = nearly 90% of wealth

Determining the fair value of a stock requires you to know the future value of the cash flow of a company and discount rate. That means forecasting the future.

The evidence shows this is very hard to do. Only about 2% of companies created nearly 90% of the total wealth in the market during the last century, Morgan Stanley’s report said. This is consistent with data we reported in our blog that found just 4% of stocks accounted for all stock market wealth creation above a risk-free investment in Treasury bills from 1926 to 2023.

The likelihood of identifying these 2% or 4% of stocks ahead of time is very slim. Mauboussin and Callahan say this requires an edge in four distinct areas.

1. Behavioural—You need to be more rational than other investors.

2. Analytical—You must be able to predict which businesses will outperform.

3. Informational—You need in-depth research giving you valuable information unavailable to others.

4. Technical—You need to be able to exploit temporary imbalances between supply and demand for a security.

If it sounds challenging, you are right. It is. Most retail investors don’t have the time, knowledge or expertise to gain an edge in these areas. Don’t forget who is on the other side of the trade: professional investors with a team of analysts and vast resources. And even most of them can’t consistently beat the market.

What is your specific edge?

If you conclude that you don’t have an edge, you shouldn’t be trying to actively trade. Instead, the best thing to do is adopt a passive diversified portfolio to capture the broad market’s returns. This means you’re sure to get exposure to the small fraction of companies that will deliver outsized gains in the long run.

If you’re trying to pick stocks, you could get lucky—for a time. But don’t confuse luck with skill. The same applies to picking an active manager. Picking the few who will outperform is called gambling.

Shift in mindset

Accepting market efficiency is a shift in mindset. It leads an investor to stop wasting its time and energy on trying to forecast markets, pick stocks or mutual fund managers. You can focus on things that do matter.

This includes assessing your risk tolerance and finding the right balance of diversified stocks and bonds to meet your goals. It means being disciplined about sticking with your investing strategy.

By adopting a new mindset, you can sit back and let the (more or less) efficient market do its thing.

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

How much risk is right?

How much risk is right?

Build a portfolio that doesn’t keep you up at night—while achieving your goals

By James Parkyn - PWL Capital - Montreal

After three straight years of double-digit equity gains, it’s easy for investors to feel bullet-proof. Yet history reminds us that market corrections are inevitable.

Times of euphoria are a good time to ask ourselves: How much of a drawdown could I truly tolerate? If you don’t think about this now, you’re more likely when a correction hits to make emotional decisions that undermine your investing success.

3 pillars of risk profiling

At PWL Capital, we determine our clients’ risk profile as an important step of creating their investment plan. The process includes filling out a risk profile questionnaire. We’ve now made it available on our website (try it here).

The questionnaire helps determine three important things about an investor:

1. Their financial ability to take risks

2. Their psychological ability to tolerate losses

3. Their need for risk

Financial ability to take risks

When designing an investment plan, it’s important to assess a client’s financial capacity to handle risk. This breaks down into a few elements.

• Time horizon—The longer you have, the more time there is to recover from inevitable down markets. Time horizon influences the portfolio’s allocation of stocks versus bonds—with the latter acting as a stabilizer or safe bucket. It’s worth noting that retirees can have very long time horizons of over 20 years.

• Value of your human capital—This is the investor’s lifetime capacity to earn income from work, save and build a retirement nest egg. Some have very stable cash flows; others less so. Some investors maintain the value of their human capital past retirement age, continuing to earn employment income.

• Risk capacity—To evaluate risk capacity, we prepare a detailed balance sheet for the client. A personal balance sheet is like getting a blood test at a medical checkup. It gives important insights for understanding an investor’s financial health and capacity to withstand large drawdowns.

Psychological profile to tolerate losses

Using the risk profiling questionnaire, we also assess the client’s emotional comfort with volatility and seeing losses in their portfolio. There’s an old saying: “An investor really learns their true risk tolerance in bear markets.”

Loss tolerance is important for designing a portfolio that the client can comfortably stick with for the long term. If an investor panics and sells in a bear market, they’re at serious risk of reducing long-term returns while they wait on the sidelines. As we often say, timing the market is virtually impossible.

Thinking about loss tolerance is especially important today after the exceptional stock markets of the last three years. It’s useful to keep in mind that markets don’t just go up. Global stocks experienced six bear markets (a 20%+ decline after inflation) in the past 55 years. That works out to 1.1 such declines per decade on average.

If you fear you may panic and sell, then you should reconsider the balance of stocks versus bonds in your portfolio.

During annual review meetings, we show clients our model portfolios and the returns pre-fees over the last 20 years. The worst period was March 2008 to February 2009. A balanced account (60% stocks, 40% bonds) dropped about 20%, while an assertive portfolio (80% stocks, 20% bonds) fell about 27%.

Despite these losses, a balanced account had a 6.73% annualized return over the past 20 years. An investor who held the entire time would have seen their holdings multiply by 3.68 times. An assertive portfolio saw an annualized return of 7.93%, with their holdings increasing by 4.6 times.

Need to take risk

Finally, we evaluate the client’s investment goals and balance sheet. If your assets are limited, you may need to take on more risk to achieve your financial goals. On the other hand, a multimillionaire who lives on $50,000 annually doesn’t need to take on undue risk.

We do financial planning with clients to understand their needs. For accumulators, we estimate the savings they require. For retirees, we aim to find a sustainable withdrawal rate.

We also consider expected returns on investments and inflation. (You can find our latest twice-yearly report on estimated expected returns in podcast #79 and this blog.)

How aging alters perception of risk

New research says we must also take into account aging. Brain systems for learning, reward and risk assessment evolve over a person’s life, says University of North Carolina finance professor Camelia Kuhnen in a recent research paper. “Those changes systematically affect financial behavior.”

Each person is different and some are unaffected. However, Kuhnen says, aging can reduce the brain’s ability to learn from experience. This is especially true in uncertain situations—such as the environment investors face.

“When decisions depend on tracking outcomes over time—such as figuring out which investments are paying off—performance declines,” Kuhnen says.

This doesn’t mean aging degrades financial decision-making. Rather, we must consider that older people may learn differently and respond differently to information.

At the same time, older adults often outperform younger ones in some areas: managing emotions and maintaining discipline during stressful times. They’ve lived through so many bear markets that they learn to tune out the noise. All this goes into helping to prepare a client’s investment plan.

Risk you can live with—and profit from

Past experience with downturns teaches us important lessons. Markets have prospered despite the dot.com crash, 911, the 2008-09 financial crisis and Covid. The key to navigating these periods is to have a long-term investing plan that reflects your risk profile and sticking to it with discipline.

As David Booth of Dimensional Fund Advisors put it: “Since we know risk is unavoidable—and it’s the source of investment returns—you want to find the amount of risk that is right for you.”

Well said, David. A patient long-term approach converts risk into gain.

Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and 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 Year in Review—A Masterclass in Misleading Emotions

2025 Year in Review—A Masterclass in Misleading Emotions

By James Parkyn - PWL Capital - Montreal

On behalf of the PWL team, I’d like to wish you a happy, healthy, and prosperous year in 2026.

Our first blog of the year is a good time to look back on what happened in the markets and economy in 2025. Last year was a masterclass in how emotions can mislead investors. It defied expectations at almost every turn.

Pundits kicked off 2025 with sombre warnings of stretched valuations, slowing growth and the possible collapse of the AI boom.

If I had told you at the start of 2025 that we’d see sweeping tariffs, a record‑long U.S. government shutdown, sticky inflation and a geopolitical rollercoaster, I think you too would have expected a rough year for stocks.

Third year of double-digit gains

Every month seemed to bring a new reason to worry. Last April saw one of the sharpest selloffs in years after the U.S. announced sweeping tariffs.

Yet, in the end, markets delivered a third straight year of stellar double‑digit gains for U.S. and Canadian stocks, as we discuss in our latest Capital Topics podcast.

Very few pundits saw such results coming—proof, once again, of our frequent advice to ignore market forecasts. (See, for example, our last blog titled “Our Best Advice of 2025.” The first tip was “Ignore the pundits.”)

The incredible results also add to the ample evidence for patiently sticking to your long-term investing plan. Trying to time the market by selling would have been a costly mistake.

Canada was the biggest surprise

Perhaps the biggest surprise was Canada. Despite the glum headlines and anxiety over U.S. tariffs, the S&P/TSX Composite Index quietly delivered one of the strongest performances in the world.

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

Economically speaking, 2025 wasn’t a boom or bust. Inflation in Canada continued its downward drift, ending the year at 2.2%. This allowed the Bank of Canada to start cutting rates earlier and more aggressively than the U.S., with four rate cuts during the year from 3.25% to 2.25%.

Canadian bonds did their job

Stubborn inflation in the U.S. led the Federal Reserve Board to be more cautious, with only three rate cuts from 4.5% to 3.75%. Euro area inflation fell more sharply, leading to four cuts from 3.15% to 2.15%.

Unemployment edged higher in both Canada (ending at 6.8%) and the U.S. (finishing at 4.4%). U.S. GDP growth surprised with a final-quarter annualized rate of 4.3% versus Canada’s more modest 2.6% third-quarter increase.

Thanks to the Bank of Canada’s rate cuts and falling yields, the Canadian short‑term bond index finished the year up 3.9%. The broader universe bond index, which holds longer-dated bonds, returned 2.6%.

Bonds didn’t steal the spotlight, but they did their job of providing stability and income.

31.7% gain for S&P/TSX

The spotlight stealer was, without a doubt, the stock market. Equities powered through wild swings in investor sentiment and uncertainty to deliver another banner year.

It’s worth recalling that in late 2024, many investors wanted to go all‑in on the U.S. market. U.S. markets had dominated for a decade, handily outperforming Canadian equities by more than 6% annually for the last 10 years. Future prospects were gloomy because of the prospect of tariffs, job losses and a productivity crisis.

But Canada shocked everyone. As of December 31, the S&P/TSX Composite Index was up 31.7%—almost triple the return of the U.S. total market index in Canadian dollar terms. Small caps did even better—skyrocketing a whopping 50.3%—while large and mid-cap value stocks gained 35.8%.

Safe-haven investors powered Canadian gains

The gains reduced the gap between U.S. and Canadian equities from 6% annually to 1.5% over the last 10 years. This is especially impressive considering that U.S. returns included the booming Magnificent 7 stocks.

This reinforces our message of diversification and not trying to wait for “the right moment” to invest. Returns often come in short, unpredictable bursts. If you wait, you’re likely to miss out.

The Canadian gains were powered by financials, energy and basic materials—the last benefitting from the rush into gold by safe-haven seekers. Basic materials small caps spiked an incredible 137.6% in 2025.

Mag 7 mega-stocks soared 21.9%

U.S. equities lagged, but still turned in a decent performance, with an 11.9% gain for the U.S. total market index in Canadian dollars (17.2% in U.S. dollars, the difference being due to the greenback falling against the loonie). Unlike in Canada, small caps and value stocks trailed, up 7.7% and 10.7% respectively in Canadian dollars.

The AI boom didn’t end; if anything, it accelerated. Roughly 40% out of the 17.9% return of the S&P 500 Index came from tech stocks, while 18% was from communication services.

The Magnificent 7 tech mega-stocks, which represent about a third of the S&P 500, remained the gravitational centre of the market with an average performance of 21.9%. That said, the boost really came from only two of the Mag 7 stocks that beat the market— Alphabet (Google), which rose 65.2% in U.S. dollars, and NVIDIA (up 38.9%).

International stocks delivered another surprise. International large and mid-cap stocks shot up 25.3% in Canadian dollars, while small caps and value stocks surged 25.9% and 35.8% respectively.

Emerging large and mid-cap stocks rallied 28.3% in Canadian dollars.

Uncertainty is the cost of admission

Uncertainty was plentiful in 2025, but 2026 has started off no different. Geopolitical and tariff risks are still significant. In fact, there has never been a year when everything was calm and predictable. Markets have always lived with uncertainty. Sudden events push us to react emotionally, as we discussed in our recent blog on investors’ behavioural biases.

But uncertainty isn’t a bug; it’s the system—the price of admission for higher long-term returns.

Last year was a reminder that markets don’t move in straight lines or follow the headlines. Remaining invested, diversified and disciplined paid off again. Investors who tried to time the market missed the strongest parts of the rally.

Investors who stayed the course prospered.

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

Investor Psychology: How Behavioural Biases Can Sabotage Your Success

Investor Psychology: How Behavioural Biases Can Sabotage Your Success

By James Parkyn - PWL Capital - Montreal

Happy New Year! I hope you had a relaxing and fulfilling holiday season. As we kick off 2026, brace yourself—the forecast flood is coming.

Financial pundits love to inundate investors at this time of year with market predictions to tell us how to invest.

You can safely tune out the vast majority of this noise. Its greatest harm is that it exacerbates our behavioural biases. Such biases shape how we save and invest—and often cause us to make mistakes, such as overtrading, chasing returns and selling in a down market.

Biggest investing risk is us

As we often say in our blog and podcast, the biggest risk to our portfolios isn’t the economy, interest rates or market prices. Most of the time, it’s us. You can have the best financial plan in the world, but if you let emotions or biases take over, that plan can fall apart very quickly.

Understanding the most common biases can help you avoid bad decisions. Fortunately, behavioural finance is one of the most researched areas in economics. It studies one of the most fascinating and perhaps frustrating parts of investing: investor psychology.

Biases can come in two forms:

• Cognitive—mistaken processing of information

• Emotional—feelings overruling facts

Emotions move markets 

Researchers like Nobel winner Daniel Kahneman and Amos Tversky described in a 1979 paper how investors are risk averse in situations of gain, but risk prone in situations of losses. This research is the basis of what is now known as loss aversion bias.

Richard Thaler, another Nobel Prize winner in economics in 2017, developed the concepts of mental accounting and overconfidence biases. Robert Shiller, another Nobel laureate, studied herding and bubbles. And Meir Statman highlighted how emotions and social factors affect investment decisions.

This research contradicts traditional finance theories, which assume investors behave rationally. In contrast, behavioural finance shows that emotions, biases and mental shortcuts often lead to unwise investment decisions.

Recency bias

One of the most common biases is recency bias. This is a cognitive tendency to give more importance to recent events or information. It leads investors to assume a recent trend is more likely to continue in the future.

I’ve seen this often during my career. For example, investors are typically more comfortable taking risks in a bull market, as they expect strong performance to continue. They also shy away from risks after a market correction or bear market as they expect markets to keep dropping.  

Overconfidence bias

Another bias we see a lot is overconfidence—the tendency to overestimate one’s investing abilities. An investor who picks a winning stock or successfully times the market one time thinks they can do it again.

Contributing to this is the overload of information online, which creates an illusion of understanding. Overconfidence bias leads to poor portfolio performance because of excessive trading and underestimation of risks.

Aversion bias

Equally powerful is aversion bias. First described by Daniel Kahneman and Amos Tversky in 1979, this is the tendency to prioritize avoiding losses over earning gains. In down markets, investors tend to stay on the sidelines and avoid buying stocks, or they outright sell their positions. They then miss out on gains when stocks rebound.

Herding bias

Herding bias is also very powerful. Investors often make investment decisions based on what others are doing, without due diligence. This bias can prompt investors to panic sell or take unnecessary risks due to the fear of missing out. This bias is at the root of both financial bubbles and panics.

Warren Buffett has good advice to counter this particular bias: “Be fearful when others are greedy and greedy when others are fearful.”

Confirmation bias

Confirmation bias is another big problem. This is the tendency to look only for evidence that supports our views. Investors are inclined to search for and favour information that supports their investing decisions and reject anything contrary.

Social media exacerbates this bias because it pushes out content similar to what we’ve already searched for.

Anchoring bias

Finally, we have anchoring bias. This is a cognitive bias that leads an investor to be overly attached to the first information they encounter when making a decision. This tends to distort appreciation of new data.

Take someone who buys a stock for $20, only for the stock to drop. The investor then refuses to sell below the buy price even if the outlook and fundamentals of the company have changed negatively.

Another example is an investor refusing to sell a stock that has declined until it returns to its all-time high.

Advisor coaching adds value

What can you do about your biases? Awareness is a good step. Another is getting advice from a trusted advisor. This is where advisors add a lot of value for clients. Advisors aren’t just portfolio managers. We’re guardrails and behavioural coaches.

Vanguard’s Advisor’s Alpha study estimated that behavioural coaching adds up to 2% in net returns annually.

Markets will always be unpredictable, and biases will always be a factor. But with awareness, discipline and support from a trusted advisor, investors can avoid the traps that sabotage long-term success. Mastering our own behavior is the ultimate edge in investing.

On behalf of the PWL team, I’d like to wish you and your family good health, happiness and success in all you do in 2026!

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

Our Best Advice of 2025

Our Best Advice of 2025

A year that defied forecasts and reaffirmed disciplined investing

By James Parkyn - PWL Capital - Montreal

As 2025 comes to an end, it’s a great time to reflect on the year gone by. It’s been turbulent, to say the least.

But amid the volatility, investors enjoyed a third consecutive year of exceptional returns—especially if they ignored the noise and stayed anchored in a disciplined long-term approach.

Here are our best nuggets of advice from the past year—perspectives worth carrying with us into 2026.

1. Ignore the pundits

After two years of stellar equity gains in 2023 and 2024, many pundits predicted a “lost decade” ahead and warned of inflation, geopolitical threats and political turmoil. Markets defied the gloomy forecasts.

Equities posted a banner year. The Canadian total stock market gained an impressive 29.96% year-to-date, while the U.S. total market shot up 17.17% in U.S. dollar terms as of the end of November.

International and emerging markets also enjoyed superb returns. Developed market large and mid-cap equities rose 23.83%, while emerging market large and mid-caps boasted a 26.76% gain.

The lesson: Invest based on a long-term investing strategy—not forecasts or emotions.

2. Diversification works

After years of U.S. equity outperformance, it was time in 2025 for Canadian and international stocks to shine. This underscores our often-repeated advice about the importance of diversification.

We can’t predict the winners of tomorrow. But if we stay broadly diversified across assets and locations, we can be sure to benefit from their rise.

Research supports this approach. We devoted a blog article to the UBS Global Investment Returns Yearbook 2025. It found that globally diversified portfolios generated higher risk-adjusted returns over the past 50 years than investing in only domestic assets in the vast majority of countries.

3. Valuations don’t help you time the markets

Some investors in 2025 grew nervous about excessive valuations after two years of outstanding back-to-back equity gains. But past such periods don’t give solid clues about what comes next.

Research shows that stock markets don’t necessarily underperform after new highs. In fact, booming markets are more likely to continue doing well than giving up their gains. One study we cited found that after a stock market rise of at least 100% in a single year, markets doubled again 26.4% of the time in the next five years. Only 15.3% of the time did they give back the entire gain.

That said, it is a good idea to periodically review your holdings and rebalance them to stay aligned with your target allocations.

4. Think twice about alternative investments

High-net-worth Canadians are often approached by advisors trying to sell them on alternative investments such as hedge funds. Data on hedge funds suggests investors should exercise extreme caution and skepticism, according to Raymond Kerzerho, PWL’s Senior Researcher.

In a three-article series, Raymond reviewed numerous studies about hedge funds and found that the returns offer mediocre returns, have complex, hard-to-understand fees and limited diversification benefits.

“Financial success depends on disciplined saving and investing, not fancy investment products that promise high returns,” Raymond concluded.

5. Passive beats active

Actively managed funds tend to underperform their passive peers and benchmarks. Morningstar’s U.S. Active vs Passive Barometer Mid-Year 2025 report measured active fund performance against passive peers net of fees.

It found that only 42% of actively managed mutual funds and exchange-traded funds beat their passive counterparts in 2024. Over 10 years, the underperformance was worse. Just 22% of active funds survived and beat their passive peers.

Similarly, SPIVA Canada Scorecard found that over 80% of active funds underperformed their benchmarks in 2024. Over 10 years, 93% of active funds underperformed their benchmarks.

6. Equities outperform—but volatility is the price of admission

Since 1900, global equities have returned 9.7% annually, far outpacing bonds (4.6%) and T-Bills (3.4%), according to the UBS Global Investment Returns Yearbook 2025. Meanwhile, inflation was 2.9% per year.

But investors have to be prepared for a rollercoaster ride to enjoy the gains. Equities were the most volatile asset class (with a 23.0% standard deviation fluctuation), compared to 13.2% for government bonds and 7.5% for T-Bills.

While the annual U.S. equity real return was 8.5% on average, this included years with a loss greater than 40%. There were also six years with gains over 40%.

7. Patience pays off

A dollar invested in a diversified international equity portfolio would have grown to over $16 after inflation since 1970—an extraordinary return of more than 1,600%, according to research by our Raymond Kerzerho.

“The stock market is a money-multiplying machine for long-term holders of globally diversified equity portfolios,” Raymond said. “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—or 1.1 such declines per decade on average.

“Investors should hold on to their portfolio and expect bear markets as a normal part of investing,” Raymond said. “These periods are the entry price to join the club of successful long-term investors.”

The real risk is sitting out. It’s fitting to conclude with some wisdom from Warren Buffett: “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

With this sage advice in mind, the PWL team wishes you a happy, healthy and prosperous holiday season—and a new year strengthened by the timeless lessons of discipline, patience and long-term perspective.

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