Just when you think that markets can’t keep going up, they keep going up. The third quarter of 2024 was another impressive display of what diversified, prudent investing can achieve. Wait, isn’t this 2025? Are you feeling déjà vu? You should, the first two sentences were taken word-for-word from our 3Q 2024 quarterly commentary. “The more that things change, the more they stay the same.” (Rush – Circumstances, 1978).
Human behaviour is a peculiar thing; we are very predictable. Even though stock markets have a 100% perfect track record of recovering from every single pullback, correction, bear market and crash ever experienced, investors still worry endlessly over the fact that stock markets are currently at or near all-time highs, agonizing over the “inevitable” correction about to happen. Most of the time, the correction doesn’t happen, or if it does, it passes very quickly, and we are off to set new, higher all-time highs, kicking off a new round of worry.
Here’s the thing: we constantly remind our clients not to worry about the “current state of the markets”. Yet, we as a firm, are regularly addressing (through podcasts, commentaries and other communications) the current state of the markets. It’s pretty much the ONLY thing that you will hear about in all forms of media. It is difficult to avoid that mindset when it is all around you. With that prophetic preamble in mind, let us address the current state of the markets.
Stock markets around the world are at or near all-time highs. So is the price of gold and so are the prices of cryptocurrencies (both non-profit generating, non-interest bearing, highly speculative commodities). Canadian bonds are not at an all-time high, but they are not too far off. That may seem hard to believe, especially when you see the -0.16% 5-year annualized return in the table below, but it goes to show that patience will allow the compounding effect of interest to be fruitful over longer periods of time.
Investment theory would claim that as long as inflation is positive, population growth is positive, and productivity is positive, capital markets should ALWAYS be at an all-time high. In general, that has been true, but not on a daily basis. Markets are cyclical in nature, containing both periods of above average returns and periods of below average returns. It is rare, however, to read financial reports that reference long-term return averages – instead you will read about recent performance or near-term expectations. And unfortunately, both of these types of information are effectively worthless. You can’t change the past, and nobody can successfully predict the near-term future any better than random luck.
The following hypothetical picture demonstrates these concepts – the red line represents the actual market and the black line is the long-term average:
If you consider the recent above-average performance of the market and combine it with weakening economic conditions and highly unstable geopolitical tensions, it is natural to expect that below-average market returns are on the horizon. But will that start in Q4 2025, Q1 2026, or maybe not until 2027 or later? A lot of people predicted it would happen in 2024, and it didn’t. The truth is, nobody knows! “Betting” on near-term market conditions is always a bad idea…it is unpredictable. Long-term averages, however, have proven to be very stable and positive over time – focus on that!
If you are a near-retiree, or a retiree, and concerned that the income from your investments will be going down, and that you don’t have the luxury of waiting for “the long term”, we still don’t think that you should worry. If you are invested in one of our Income portfolios, the income levels typically do not vary based on market movements (up or down). From month-to-month, most ETFs in our Income portfolios do not change their distribution levels at all, regardless of what markets do. Furthermore, our own view is that we expect longer-term, bond-based ETFs to gradually increase their distribution rates as higher yielding bonds still have not made their full impact on market indices since interest rates began rising a few years ago.
Ideally, you probably should not change your investment portfolio very often over the lifetime of any particular account and if you do, it should be due to a change in your financial condition or the gradual reduction of risk over the passage of time – never based on the current state of markets.
Here is a recap of market performance as of September 30, 2025*
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