As a portfolio management firm, we allocate our clients’ wealth into investment portfolios designed to provide efficient risk-adjusted returns over the long term. To achieve this, we regularly review and update our portfolios through a four-step process:
- Establishing assumptions: defining long-term capital market assumptions for our approved asset classes.
- Developing model portfolios: blending approved asset classes in various weightings to offer a range of risk/return profiles.
- Selecting products: evaluating investment products to determine which ones to include in client accounts.
- Mapping for efficiency: mapping approved investment products to model portfolios across different account types in order to maximize tax efficiency and minimize costs.
This article focuses on the first step: establishing long-term capital market assumptions for 2026.
What are Long-Term Capital Market Assumptions?
You can think of long-term capital market assumptions as the building blocks of an investment portfolio. We begin by identifying a list of asset classes that we might want to include in client portfolios. Our list of approved asset classes currently includes:
| Fixed Income | Equity (Stocks) | Alternatives |
|---|---|---|
| Canada – Cash | Canada | Gold |
| Canada – Short-term Bonds | United States | |
| Canada – Universe Bonds | International – Developed Markets | |
| United States – High Yield Bonds | International – Emerging Markets | |
| Global – Low Volatility |
- Expected return: the average annual percentage return we expect to be generated over the long term (i.e. 10+ years).
- Expected risk: a measure of the expected year-to-year volatility of the expected return.
- Expected correlation: the degree to which the returns of any two asset classes are expected to move up or down in relation to each other.
Developing long-term capital market assumptions is a complex financial modelling exercise typically undertaken by large institutional investors. Rather than building such a model from scratch, we consolidate publicly available assumption data from trusted sources. We apply professional judgment to adjust the consolidated data when warranted, but our core methodology relies heavily on the consensus-driven data.
2026 Long-Term Capital Market Assumptions
After completing the data collection process outlined above, we have updated our long-term capital market assumptions for 2026. While it is impossible to predict future market movements with certainty, these assumptions represent our baseline expectations for the average annual returns (before fees or taxes) that a Canadian investor will receive when investing in various asset classes over the long term:
A useful way to visualize long-term capital market assumptions is to plot the intersection of expected return and expected risk for each asset class on a scatter chart. As demonstrated in the chart below, this highlights a clear relationship between return and risk: in order to earn a higher return, an investor generally needs to be willing to accept more risk.
Changes to Expected Returns
As discussed in our recent article, The Year in Review: 2025, capital markets just delivered a third consecutive year of impressive gains. However, a byproduct of such sustained, above-trend performance is a lowering of future return expectations. This dynamic is reflected in our latest assumptions, with expected returns declining by approximately 1% across most asset classes. The sole exception to this trend is Gold, which saw a notable increase to its expected return. The chart below illustrates these shifts, comparing our 2026 long-term capital market assumptions against our previous data:
Conclusion
The purpose of this article is to provide insight into how we establish our long-term capital market assumptions and how they serve as the foundational building blocks for our investment portfolios. While our 2026 update reflects a broad reduction of approximately 1% in expected returns across most asset classes, it is important to remember this is the natural byproduct of three consecutive years of very impressive market gains. Despite these tempered expectations, the go-forward prospects for our portfolios remain solid. If you have any questions or would like to discuss this topic in more detail, please contact your advisor.