Following back-to-back years of impressive returns in 2023 and 2024, it was reasonable to expect a more challenging investment environment in 2025, particularly with the spectre of protectionist trade policies from the incoming Trump administration in the United States. Fears of a global trade war materialized on April 2nd – a day Donald Trump christened “Liberation Day” – when the U.S. announced a 10% baseline tariff on almost all imports coupled with punitive “reciprocal” rates on major trading partners like China and the EU, sending markets into a multi-day tailspin. Thankfully the gloom was short-lived, with three catalysts ultimately propelling markets to a third consecutive year of impressive returns:

  • Policy Softening: in a stunning U-turn, just one week after “Liberation Day,” the Trump administration paused the harshest reciprocal tariffs and negotiated exemptions for key allies (like Canada and Mexico), calming the market’s worst fears.
  • “One Big Beautiful Bill”: U.S. legislation extended 2017 tax cuts and introduced pro-growth measures to bolster consumer sentiment. Paired with the Trump administration’s broad deregulatory agenda, these policies provided a tailwind, at least in the short term, that drove capital markets higher.
  • The AI Engine: despite growing anxiety over a potential bubble, the Artificial Intelligence boom remained a pillar of market strength. Big Tech company earnings and investment continued their historic run, providing enough fundamental growth to outweigh valuation concerns.

Read on for our full review of capital markets performance in 2025, what might lie ahead for investors in 2026, and a recap of our firm’s highlights from the past year.

2025 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 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 2025 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 many asset classes experiencing impressive returns. Similar to 2023 and 2024, investors were well-compensated for holding almost any type of financial asset in 2025, be that cash, bonds, stocks, or gold. For more details on why this was the case, click/tap below to expand our commentary on 2025 capital markets performance:

  • Inflation (+2.2%) remained stable in 2025, spending a second consecutive year comfortably within the Bank of Canada’s 1% to 3% target range following the return to normalcy in 2024 (+1.9%). While the year began with fears that U.S. protectionism would drive up costs, Canada’s strategic exemption from the “Liberation Day” tariffs shielded domestic prices somewhat from the volatility. With inflation anchoring near the 2% midpoint, the Bank of Canada had runway to continue its easing cycle and reduced their policy rate four times in 2025, settling at 2.25% by the end of the year.
  • The U.S. Dollar (–4.7%) reversed course in 2025, weakening against the Canadian dollar and giving back a portion of the gains seen in 2024 (+8.8%). For Canadian investors, this depreciation acted as a modest headwind in 2025, dampening the returns of U.S. stocks when converted back to 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 (+2.9%) saw its return moderate in 2025, stepping down from the highs of the previous two years (+4.9% in 2024; +4.8% in 2023) as the era of “risk-free” 5% yields came to a close. This decline was mechanical and expected: with the Bank of Canada cutting the policy rate four times to finish the year at 2.25%, the yield on high-interest savings and money market funds naturally drifted lower. While positive, the return on cash barely outpaced inflation (+2.2%), resulting in a negligible gain in real purchasing power. More importantly, 2025 served as a stark reminder of the “cost of safety.” Investors who remained parked in cash to avoid the volatility of the “Liberation Day” headlines missed the subsequent rally in equities and significantly trailed the returns of a diversified portfolio by year end. With a lower interest rate environment in 2026, cash should be viewed primarily as a liquidity tool rather than a growth engine.
  • Short-term Bonds (+3.8%) delivered a solid performance in 2025, outperforming Cash (+2.9%) by nearly a full percentage point. As the Bank of Canada cut interest rates four times, short-term bond yields fell, which pushed bond prices higher. This capital appreciation provided a boost to short-term bond returns that cash accounts cannot replicate. Although the total return moderated from 2024 levels (+5.5%) due to lower starting yields, short-term bonds proved their worth as a superior alternative to cash in a falling-rate environment, capturing the upside of monetary easing while maintaining portfolio stability.
  • Universe Bonds (+2.5%) posted positive returns, continuing the recovery from the bear market of 2021/2022. However, the asset class lagged behind its shorter-duration counterpart (Short-term Bonds +3.8%). While the Bank of Canada’s rate cuts boosted some bond prices, the benefit was uneven. The short end of the yield curve rallied on policy easing, but longer-term bond yields remained stubborn, held up by the global uncertainty of the “Liberation Day” tariffs and concerns over long-term inflation. As a result, the broad bond market faced a “steepening” yield curve where investors demanded higher compensation for locking up money long-term in such a volatile political environment. Despite the muted performance, the starting yield for Universe Bonds remains healthy compared to historical lows, offering a reasonable income cushion as we head into 2026.
  • U.S. High Yield Bonds (+6.9%) delivered a consistent performance in 2025, nearly matching their 2024 return (+7.0%) and once again handily outperforming higher-quality fixed income options like Cash (+2.9%) and Universe Bonds (+2.5%). While the “Liberation Day” tariffs caused brief anxiety, the subsequent passage of the “One Big Beautiful Bill” in the U.S. provided a crucial tailwind: lower corporate taxes and deregulation helped shore up the balance sheets of lower-rated issuers, keeping default rates low. Investors continued to earn attractive yields, collecting high interest income while also capturing modest capital appreciation as the Federal Reserve cut interest rates.
  • Canada Equity (+31.7%) claimed the title of best-performing equity asset class in 2025. Despite the looming threat of a trade war and antagonistic statements about Canada’s sovereignty from the U.S. President, the Canadian stock market benefited from several tailwinds: exemption from the worst U.S. tariffs made Canada a safe harbour for capital and the explosive rally in Gold (+57.2%) benefited the country’s Materials sector.
  • U.S. Equity (+11.7%) delivered a positive return for the third consecutive year, though it ceded its leadership position to Canadian and International markets. While the “AI Engine” kept the U.S. stock market near record highs in local terms (gaining roughly +17.2% in U.S. dollars), the return was dampened for Canadian investors by the weakening U.S. Dollar. This marked a sharp reversal from 2024, when currency strength supercharged returns.
  • International Equity (+25.2%) performed very well in 2025, almost doubling the return from the previous year. As the risks of a total global trade war faded into the softer reality of negotiated settlements, valuations in Europe and Asia re-rated rapidly. Investors who had abandoned these markets in early 2025 rushed back in during the second half of the year to capture the “relief rally.”
  • Emerging Markets Equity (+25.2%) matched the performance of International Equity in 2025. Despite the risks of U.S. tariffs, many Emerging Markets benefited from the shifting of supply chains away from China, while domestic stimulus measures announced by Beijing to counteract trade pressures benefited Chinese stocks.
  • Global Low Volatility Equity (+5.5%) posted a positive return in 2025 but significantly lagged the broader equity markets. In a classic “Risk-On” year – where gold miners, emerging markets, and cyclical stocks surged – defensive, lower risk stocks simply fell out of favour. This asset class did its job by protecting capital during the brief “Liberation Day” downturn, but it naturally trailed over the full year.
  • Gold (+57.2%) was, without question, the asset class of the year. Following an exceptional 2024 (+37.7%), the price of the precious metal went dramatically higher in 2025. Gold served a dual purpose: in the first half of the year, it was the ultimate “fear trade” against the “Liberation Day” tariffs and geopolitical instability; in the second half, it became an inflation hedge against the pro-growth spending of the “One Big Beautiful Bill” and continued as a hedge against rising geopolitical uncertainty. Central bank buying continued almost unabated throughout the year, creating a supply-demand imbalance that drove prices to historic highs.

Chart 2 demonstrates that the performance of our model portfolios in 2025 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. Another pattern in 2025 was the outperformance of model portfolios with an allocation to gold. While the target allocation to gold in our model portfolios is moderate (at most 5%), including the precious metal in a portfolio provided an uplift of about 2% in 2025 compared to a “without gold” model portfolio of similar risk.

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 markets and hypothetical model portfolio performance over the past 5 years:

Most of the benchmark returns presented in Chart 3 are currently tracking in line with, or above, our long-term capital market assumptions (represented by vertical blue lines in Chart 3); however there are several notable exceptions:

  • Short-term Bonds (+1.8%) experienced back-to-back years of negative returns in 2021 and 2022 as a result of high inflation and actions by the Bank of Canada to aggressively raise interest rates. While returns in 2023 (+4.9%) and 2024 (+5.5%) were much better, and 2025 (+3.8%) was also positive, the cumulative result is an annualized return of just 1.8% over the past five years, which is substantially lower than our long-term return assumption of 4.3%. The good news is that Short-term Bonds now provide a higher yield compared to the start of 2022 – currently around 3.0% – so the asset class is likely to produce better returns in the years ahead.
  • Universe Bonds (–0.3%) saw the 5-year annualized return dip into negative territory, a historically rare occurrence for investment-grade fixed income. This figure was weighed down by the math of rolling returns: as the calendar turned to 2025, the strong gains of 2020 (when interest rates collapsed during the pandemic) dropped out of the 5-year calculation, leaving the heavy losses of 2021 (–2.5%) and 2022 (–11.2%) to dominate the average. The result is a return significantly below our long-term assumption of 4.3%; however, with starting yields remaining healthy compared to the lows of the past decade, the forward-looking return potential is more constructive than the trailing history suggests.
  • U.S. High Yield Bonds (+3.4%) continued their 5-year return recovery, improving on the 2.8% annualized return reported last year, though still trailing our long-term return assumption of 6.5%. The aggressive interest rate hikes of 2022 continue to act as an anchor on the 5-year average; however, the consistency of recent performance – with strong single-year returns in 2023, 2024, and 2025 – is steadily repairing the damage. With current yields remaining attractive, the asset class is well-positioned to gradually reverse the drawdown, and we expect annualized returns to drift closer to our long-term assumptions as the impact of 2022 fades.
  • Emerging Markets Equity (+5.3%) saw a meaningful jump in its 5-year annualized return – up from 3.8% a year ago – thanks to the robust +25.2% gain realized in 2025. While the 5-year return remains below our long-term assumption of 9.9%, the shortfall is narrowing consistently. This performance serves as a reminder of the bumpy nature of returns in this asset class: volatility cuts both ways, and impressive years like 2025 can quickly offset periods of stagnation. Given the high growth potential and diversification benefits, we remain comfortable with the current deviation from expectations but will continue to monitor this asset class nevertheless.

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 4 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. Another pattern over the past 5 years was the consistent outperformance of model portfolios with an allocation to gold. While the target allocation to gold in our model portfolios is moderate (at most 5%), including the precious metal in a portfolio provided an uplift of about 1% per year for the 5-year period ending December 31, 2025 compared to a “without gold” model portfolio of similar risk.

Firm Highlights

2025 was a year dedicated to strengthening our operational foundation and preparing High Level Wealth Management for the future. While we focused much of our time and energy on navigating necessary transitions and rebuilding key internal tools, the year was still a relatively successful one. Despite temporarily pausing new client introductory appointments for most of the year in order to focus on these internal improvements, the firm’s assets under management grew by more than 15% compared to December 2024, driven primarily by strong investment returns.

From an operational perspective, 2025 was defined by several “one-time” events. These necessary projects diverted significant time and resources, requiring us to put some growth plans on hold to ensure our internal systems and compliance standards were prioritized:

  • We worked through a particularly complex tax season hampered by external technical issues with the CRA’s filing systems.
  • We engaged with the Alberta Securities Commission as part of their regular industry oversight function. Cooperating with regulatory compliance reviews is part of maintaining the high standards of trust and transparency our clients expect.
  • We successfully transitioned our portfolio management software to a new service provider. This significant undertaking was necessary due to the unexpected exit of our previous vendor – whom we had worked with since 2021 – from the Canadian market.
  • We updated our business plan to ensure the long-term sustainability of our firm. As a result of this process, we announced adjustments to our management fees, which are now in effect.

High Level Wealth Management has the following priorities for 2026:

  • Completing the regulatory compliance review process with the Alberta Securities Commission.
  • Resuming a project to convert several reports from standalone spreadsheets into interactive client portal modules, offering clients a better digital experience.
  • Improving the user experience of our client portal on mobile devices. This project has been on the list for several years while we await improvements to the underlying platform on which the client portal operates. Some of those improvements arrived in 2025 with additional improvements expected later in 2026, which will allow work to begin on enabling a better mobile experience.
  • Resuming new client introductory appointments, by reaching out to people on our waiting list, which was established in early 2025 and has grown to approximately 30 people. At the same time, we remain conscious of our service 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 currently at about 60% of our ultimate capacity, so there is still a good amount of room to grow.

Looking Ahead

Before looking ahead to 2026, let’s revisit how we concluded last year’s annual review:

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.

In retrospect, 2025 was a year of counterbalances. Many of the downside risks we highlighted last year did in fact materialize, yet for each challenge an offsetting factor emerged to stabilize the narrative. For instance, while the Trump administration was indeed heavy-handed with tariffs initially, the economic blowback was severe enough that many of the most extreme measures had to be walked back, calming markets. Similarly, the passage of the “One Big Beautiful Bill” will undeniably lead to larger long-term budget deficits; however, equity markets chose to focus almost exclusively on the near-term benefits to corporations and the administration’s focus on deregulation. While concerns about the U.S. fiscal position continued to grow, they were overshadowed – at least for now – by the possibility of an artificial intelligence-driven productivity boom.

As we move into 2026, key questions shift from policy implementation to policy sustainability. We must ask whether the economic momentum generated by last year’s fiscal stimulus can persist without reigniting inflation. The relief provided by the walk-back of tariffs may be temporary if underlying trade tensions remain unresolved. Furthermore, the bond market’s patience with widening deficits may be tested, potentially keeping borrowing costs stubbornly high just as the full impact of the “One Big Beautiful Bill” ripples through the U.S. economy. At the start of 2026, optimism remains tethered to the continued strength of the technology sector; however, markets may be tested if broad-based economic growth doesn’t materialize to support current valuations or if the AI narrative begins to cool.

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 unsophisticated advice, but it is nonetheless advice that has served many investors well. While the process of investing is relatively simple, sticking to a plan in the face of fear and uncertainty is never easy.

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.