After an impressive year for markets in 2023, it was reasonable to assume that 2024 would provide more moderate returns. However, with economic growth remaining steady in many parts of the world, inflation moderating, and central banks starting to reduce short-term interest rates, capital markets surprised by performing exceedingly well for a second consecutive year.

Read on for a recap of capital market performance in 2024, our thoughts of what might lie ahead for investors in 2025, and a review of our firm highlights from the past year.

2024 Performance

Given our passive investment management philosophy, we don’t spend time analyzing the economic cycle or forecasting short-term returns for individual securities, sectors, or countries. Instead, we focus on long-term return assumptions for broad asset classes and construct model portfolios that we expect to generate efficient returns for our clients over time.

Despite our long-term focus, monitoring the performance of capital markets over shorter time frames helps assess whether investment returns are evolving consistent with long-term assumptions. Chart 1 outlines the returns for various asset class benchmarks in 2024 while Chart 2 demonstrates how combining those benchmark returns in different proportions – our model portfolios – impacted results last year:

As demonstrated in Chart 1, the past year was very rewarding for investors, with the majority of asset classes experiencing impressive returns. Similar to 2023, investors were well-compensated for holding almost any type of financial asset in 2024, be that cash, bonds, stocks, or gold. For more details on why this was the case, click/tap below to expand our commentary on 2024 capital market performance:

  • Inflation (+1.9%) remained one of the biggest economic stories of 2024 as it finally returned to a level within the Bank of Canada’s target range of 1% to 3% after spending the last three years above it (+4.7% in 2021; +6.8% in 2022; +3.1% in 2023). Elevated interest rates and the continued improvement of pandemic-related supply chain disruptions applied downward pressure on inflation, allowing the Bank of Canada to start cutting its policy interest rate in June. The policy rate was reduced a total of five times in 2024, from a peak of 5.00% down to 3.25% by the end of the year.
  • The U.S. Dollar (+8.8%) strengthened significantly against the Canadian dollar in 2024, amplifying the investment return of assets denominated in U.S. dollars. Much of the U.S. dollar appreciation occurred in response to the results of the U.S. Presidential election in November and the market’s expectations for the incoming administration’s economic/trade policies. A stronger U.S. dollar increases the value of U.S. investments in a Canadian investor’s portfolio once those assets are converted back to the investor’s home currency (i.e. Canadian dollars). Historically, the U.S. dollar strengthens against the Canadian dollar during periods of economic turmoil, and for this reason we avoid hedging the currency of foreign equity investments in our model portfolios. Maintaining exposure to the U.S. dollar is expected to reduce the price volatility of U.S. dollar-denominated assets over the long term.
  • Cash (+4.9%) provided a second consecutive year of compelling returns in 2024, especially given its “risk-free” nature. The return on cash is tied to short-term interest rates which had increased dramatically since the start of 2022. With the Bank of Canada cutting interest rates throughout the second half of 2024 and the policy rate ending the year at 3.25%, the return on cash is expected to be more moderate going forward. While cash provided a compelling return last year, the results might be little consolation for any investors that retreated from holding stocks or bonds to the safety of cash and subsequently missed out on even better returns from riskier asset classes.
  • Short-term Bonds (+5.5%) experienced a positive return in 2024 and slightly outpaced the return from holding Cash. Due to higher prevailing bond interest rates, the yield on Short-term Bonds is now substantially higher than it was at the start of 2021, providing investors with more attractive return prospects going forward. If interest rates continue to decline, bond prices will increase, providing additional returns in the form of capital gains.
  • Universe Bonds (+4.1%) experienced a second year of positive returns in 2024 after two years of declines in 2021 (-2.5%) and 2022 (-11.2%). Due to higher prevailing interest rates, the yield on Universe Bonds – which include short-, medium-, and long-term bonds issued by Canadian governments and large corporations – is now substantially higher than at the start of 2021, providing investors with more attractive return prospects going forward. If interest rates continue to decline, bond prices will increase, providing additional returns in the form of capital gains.
  • U.S. High Yield Bonds (+7.0%) performed well in 2024 and outpaced the returns from holding Cash, Short-term Bonds, or Universe Bonds. Credit spreads – the difference between interest rates on corporate bonds and interest rates on U.S. Treasury bonds of the same maturity – are relatively low by historical standards, but the all-in yields offered by U.S. High Yield Bonds (about 7.5%) remain above the 10-year median rate (about 6.4%). Default rates for corporate bond issuers have been rising but remain low by historical standards. This asset class was first introduced into our model portfolios in late 2023 making 2024 the first year where clients had material exposure to the asset class.
  • Canada Equity (+21.7%) performed very well last year. The best performing sectors in 2024 were Information Technology (+32.9%), Financials (+30.1%), and Consumer Staples (+24.7%); the worst performing sectors were Industrials (+9.7%), Real Estate (+5.5%), and Telecommunication Services (-15.3%).
  • U.S. Equity (+34.0%) was by far the best performing asset class for a second consecutive year in 2024, driven by a large weighting to the Technology sector and the so-called “Magnificent 7” – Apple, Alphabet, Microsoft, Amazon.com, Meta Platforms, Tesla, and Nvidia – which benefited from the investor enthusiasm around artificial intelligence. The strengthening U.S. dollar supercharged gains for Canadian investors; without accounting for U.S. dollar strength, U.S. Equity performance would have been +23.6% in 2024.
  • International Equity (+12.9%) provided double-digit returns in 2024 albeit the lowest performing equity asset class for the year. The best performing geographies for the year were Israel (+46.2%), Singapore (+37.3%), and Italy (+22.2%); the worst performing geographies were Finland (+1.5%), Denmark (-3.0%), and Portugal (-9.8%).
  • Emerging Markets Equity (+16.8%) provided a strong return in 2024 but continued a recent streak of underperformance relative to most other equity asset classes. The best performing geographies for the year were Taiwan (+40.2%), Malaysia (+33.8%), and China (+29.5%); the worst performing geographies were Egypt (-19.4%), Mexico (-20.7%), and Brazil (-24.1%).
  • Global Low Volatility Equity (+21.5%) performed very well in 2024, outpacing the returns from holding either International Equity or Emerging Markets Equity. The objective of Global Low Volatility Equity is to track the investment results of companies that, in aggregate, have lower volatility (i.e. price variation) characteristics relative to the broader market. In a period like 2024 where equities increase substantially, the Global Low Volatility Equity asset class typically underperforms, so the strong performance of the asset class over the past year is quite impressive.
  • Gold (+37.7%) had a second consecutive year of exceptional returns in 2024 and was the best performing asset class. Economic headwinds in China and the potential of price deflation in that country, as well as increasing geopolitical conflicts and uncertainty about the policy direction of the incoming U.S. administration resulted in high demand for the safe-haven asset. Purchases of the commodity by central banks throughout the year also contributed to the positive results.

Chart 2 demonstrates that the performance of our model portfolios in 2024 obeyed the typical relationship between portfolio risk level and portfolio return, with higher risk portfolios experiencing better returns for the year than lower risk portfolios. While this relationship does not always hold year-to-year, investors willing to take on more investment risk are expected to be rewarded with higher returns over the long term.

5-Year Performance

We encourage investors to discount the year-to-year performance swings of capital markets and to instead focus on longer-term results. Charts 3 and 4 therefore present annualized capital market and hypothetical model portfolio performance over the past 5 years:

Most of the benchmark returns presented in Chart 3 were either relatively unchanged or improved for the 5-year period ending December 31, 2024 compared to the 5-year period ending in 2023. About half of the 5-year benchmark returns are currently tracking closely in line (i.e. +/- 2%) with our long-term capital market assumptions (represented by vertical blue lines in Chart 3), with the following notable exceptions:

  • Universe Bonds (+0.8%) experienced back-to-back years of negative returns in 2021/2022 as a result of high inflation and actions by the Bank of Canada to aggressively raise interest rates. While 2023 was a much better year (+6.6%) and 2024 was also positive (+4.1%), the net result is an annualized return of just 0.8% over the past five years, which is substantially lower than our long-term return assumption of 4.3%. The good news is that Universe Bonds now provide a much higher yield compared to the start of 2022 – currently around 3.7% – so the asset class is likely to produce better returns in the years ahead.
  • U.S. High Yield Bonds (+2.8%) experienced an annualized return of just 2.8% over the past five years, which is substantially lower than our long-term return assumption of 6.5%. Like Canadian Universe bonds, this asset class has performed poorly in recent years as a result of high inflation and actions by central banks to aggressively raise interest rates. The good news is that U.S. High Yield Bonds now provide an attractive yield – currently around 7.5% – so the asset class is well-positioned to provide better returns in the years ahead.
  • Canada Equity (+11.1%) experienced an impressive annualized return of 11.1% over the past five years, which is considerably higher than our long-term return assumption of 7.8%. We would therefore expect Canada Equity returns to be more moderate going forward.
  • U.S. Equity (+15.9%) experienced a truly incredible annualized return of 15.9% over the past five years, even despite a poor result in 2022 (-14.0%). A continuation of returns of this magnitude – more than double our long-term return assumption of 7.1% – seems unlikely and we therefore expect U.S. Equity returns to be much more moderate going forward. However, we made a similar comment after the strong results of 2023 only to observe U.S. Equity returns rocket even higher in 2024 (+34.0%). This example highlights the perils of trying to actively time the markets and why we adhere to a passive investment management philosophy.
  • Emerging Markets Equity (+3.8%) was the worst performing equity asset class over the past five years, earning an annualized return of just 3.8%. This is well below our long-term return assumption of 9.9% and represents the largest shortfall for an asset class relative to its long-term assumption. However, the shortfall has narrowed over the past two years, and given the high expected risk (i.e. price volatility) of Emerging Markets Equity, periods of below average growth should be expected. We are not concerned by the current deviation from expectations but we will continue to monitor this asset class nevertheless.
  • Gold (+13.7%) has experienced impressive returns over the past five years, far surpassing our long-term return assumption of 4.7%. The price of the precious metal is historically very volatile so it is not surprising to see large deviations from our long-term return assumption for this asset class. Gold is an optional component in some of our model portfolios, included primarily for its diversification benefits, not because it is expected to provide consistently high (nor stable) returns.

Chart 4 demonstrates that the hypothetical 5-year performance of our model portfolios – presented for illustrative purposes only given that our official performance track record began April 1, 2021 (only 3 years 9 months ago) – obeyed the typical relationship between portfolio risk level and portfolio return, with higher risk portfolios experiencing better returns over the past five years than lower risk portfolios. Given the impressive returns experienced last year, the 5-year annualized returns for all model portfolios ending December 31, 2024 improved compared to the 5-year period ending in 2023.

Firm Highlights

2024 was a successful year for High Level Wealth Management as we continued to welcome new clients and grew the firm’s assets under management by 40% compared to December 2023. We are proud of the fact that most new clients find us through word-of-mouth referrals or by organically searching for alternatives to traditional wealth managers.

From an operational perspective, we completed several important projects in 2024:

  • Subscribing to more sophisticated investment research software. The new tool offers more advanced features that improve our process for reviewing model portfolios, capital market assumptions, and investment products. It also provides access to a wide range of sustainability data to enhance our process for evaluating sustainable investment strategies.
  • To best serve our growing clientele, we opened an office in the Ritchie Mill that provides a dedicated meeting space for in-person appointments.
  • We developed a new “client profile” feature in the My High Level Wealth client portal that enables new clients to efficiently provide their personal information and enables existing clients to keep their personal information up to date. At review meetings throughout 2025, your advisor will assign you a task to review/update your client profile.

High Level Wealth Management has several priorities in 2025:

  • Improving the user experience of our client portal on mobile devices. This project has been on the list for several years while we await some exciting improvements to the underlying platform on which the client portal operates. The improvements should be coming later in 2025, which will allow work to begin on enabling a better mobile experience.
  • Converting several reports from standalone spreadsheets to interactive client portal modules.
  • Introducing our services to more clients. It is hard to assess in advance what our maximum capacity will be for bringing on new clients, but we are always conscious of our limits and continually assess whether we can continue bringing on new clients without adversely affecting the level of service provided to existing clients. At this point we estimate that we are at about 60% of our ultimate capacity, so there is still a good amount of room to grow. If you know someone that might benefit from our services, please let them know about us.

Looking Ahead

Before looking ahead to 2024, let’s revisit how we concluded last year’s annual review:

As we move into 2024, a key question is how quickly inflation returns to target (i.e. 2%) and how this impacts central bank interest rate policy. Investors currently predict rate cuts to start in the first half of the year, which could be overly optimistic should the economy continue to perform above expectations and if inflation remains high as a result. There will also be a Presidential election in the United States in November, the outcome of which could have far-reaching implications for the world and capital markets.

As we now know, inflation returned to the Bank of Canada’s target, allowing for a 1.75% reduction of the policy interest rate by year end. Economic growth remained robust, particularly in the United States where optimism around technology and artificial intelligence supercharged investment returns last year. The re-election of Donald Trump in November created a surge of investor risk taking as the market anticipates fewer regulations, lower taxes, and a pro-America pro-business policy agenda in the years ahead.

As we move into 2025, a key question is the extent to which the incoming U.S. administration proceeds with any of the more extreme policies that Donald Trump campaigned on. The possibility of mass deportations, broad-based tariffs, and potential trade wars could quickly reverse the progress that has been made on reducing inflation. Additional tax cuts or government spending could balloon the already large U.S. budget deficit and drastically increase the country’s debt at a time when interest rates are elevated and some investors have started to question the long-term sustainability of the country’s finances. At the start of 2025 there is an abundance of optimism about the prospects for the economy and investment returns; however both corporations and governments will need to thread a very delicate needle in order to deliver results that match the market’s very high expectations.

Like most years, there are many risks and opportunities on the horizon, but trying to predict future outcomes is impossible. Instead, we remain confident that investors are best served over the long run by remaining fully invested in low-cost passively-managed portfolios that are suitable for their circumstances given their financial objectives and risk tolerance. That may seem like very basic advice, but it is advice that has undeniably served many investors well.

We wish everyone a prosperous year ahead and we look forward to playing a part in your continued success.

Footnotes

Data sources:

Inflation & Currency
Inflation
: Canada All-Items CPI (1 Month Lag)
U.S. Dollar: Bank of Canada CAD/USD Daily Rate
International Currencies: Bank of Canada Daily Nominal Canada Effective Exchange Rate excluding the U.S. Dollar (Inverted)

Fixed Income
Cash: S&P Canada Treasury Bill Index
Short-term Bonds: Solactive Broad Canadian Short Term Bond Universe Index
Universe Bonds: Solactive Broad Canadian Bond Universe Index
U.S. High Yield Bonds: Markit iBoxx USD Liquid High Yield Index (CAD Hedged)

Equity
Canada: S&P/TSX Capped Composite Index
U.S.: CRSP US Total Market Index (CAD)
International: MSCI EAFE Investable Market Index (CAD, net of withholding taxes)
Emerging Markets: MSCI Emerging Markets Investable Market Index (CAD, net of withholding taxes). Prior to December 2023: MSCI Emerging Markets Index (CAD, net of withholding taxes)
Global Low Volatility: MSCI All Country World Minimum Volatility Index (CAD, net of withholding taxes)

Alternatives
Gold: LBMA Gold Price (CAD, AM Price)

It is not possible to invest in a benchmark or index directly and returns do not reflect the transaction costs or management fees that an investor would incur when investing in a financial product, such as an exchange-traded fund, that attempts to track the performance of a benchmark or index.
Data sources:

Model portfolio returns are calculated by averaging the asset class returns presented in Chart 1, weighted by each model portfolio’s asset allocation targets. Review our 2024 Model Portfolios article for additional details.

Returns presented are hypothetical because it is not possible to invest in a benchmark or asset class index directly. The returns presented do not reflect the transaction costs or management fees that an investor would incur when investing in a financial product, such as an exchange-traded fund, that attempts to track the performance of a benchmark or asset class index.

Clients’ actual returns will vary based on their management fees and the timing of cash flows into or out of their accounts. Model portfolio returns also assume that asset class weightings are held constant while in practice an account’s asset allocation may deviate from targets within a predetermined range before being rebalanced.

Data sources:

Inflation & Currency
Inflation
: Canada All-Items CPI (1 Month Lag)
U.S. Dollar: Bank of Canada CAD/USD Daily Rate
International Currencies: Bank of Canada Daily Nominal Canada Effective Exchange Rate excluding the U.S. Dollar (Inverted)

Fixed Income
Cash: S&P Canada Treasury Bill Index
Short-term Bonds: Solactive Broad Canadian Short Term Bond Universe Index
Universe Bonds: Solactive Broad Canadian Bond Universe Index
U.S. High Yield Bonds: Markit iBoxx USD Liquid High Yield Index (CAD Hedged)

Equity
Canada: S&P/TSX Capped Composite Index
U.S.: CRSP US Total Market Index (CAD)
International: MSCI EAFE Investable Market Index (CAD, net of withholding taxes)
Emerging Markets: MSCI Emerging Markets Investable Market Index (CAD, net of withholding taxes). Prior to December 2023: MSCI Emerging Markets Index (CAD, net of withholding taxes)
Global Low Volatility: MSCI All Country World Minimum Volatility Index (CAD, net of withholding taxes)

Alternatives
Gold: LBMA Gold Price (CAD, AM Price)

It is not possible to invest in a benchmark or index directly and returns do not reflect the transaction costs or management fees that an investor would incur when investing in a financial product, such as an exchange-traded fund, that attempts to track the performance of a benchmark or index.

Data sources:

Model portfolio returns are calculated by averaging the asset class returns presented in Chart 3, weighted by each model portfolio’s asset allocation targets. Review our 2024 Model Portfolios article for additional details.

Returns presented are hypothetical and do not reflect actual investment returns earned by clients of High Level Wealth Management – our firm was granted registration in the category of Portfolio Manager in early 2021 and did not manage client investments prior to that time. We present hypothetical 5-year model portfolio performance to illustrate how our model portfolios might have performed (before fees) over a medium historical time frame. It is not possible to invest in a benchmark or asset class index directly and the returns presented do not reflect the transaction costs or management fees that an investor would incur when investing in a financial product, such as an exchange-traded fund, that attempts to track the performance of a benchmark or asset class index.

Clients’ actual returns will vary based on their management fees and the timing of cash flows into or out of their accounts. Model portfolio returns also assume that asset class weightings are held constant while in practice an account’s asset allocation may deviate from targets within a predetermined range before being rebalanced.