The word ‘uncertainty’ might just be the most overused word in financial journalism today. And there’s a good reason why: we’re all feeling it, and stock markets seem to be manifesting it. Trump is raising everyone’s hackles as he changes his mind daily and invokes war-time measures to implement his policy agenda without congressional debate. The VIX index, a measure of the US stock market’s volatility, is back up to where it was in late 2022 during the worst of the inflation crisis. We’re all wondering what could possibly come next, as fundamental checks and balances are seemingly upended.
Uncertainty is a poorly understood concept, particularly when it comes to investing. To illustrate, let’s go back for a minute to November 2019. Trump was in office, and the US trade war with China had faded to the background (though not the tariffs Trump had applied.) The US stock market was once again hitting new highs, after suffering a 20% decline a year prior. The US Federal Reserve, and the Bank of Canada, were in a tightening cycle as economies were doing well enough on both sides of the border to sustain higher interest rates. In short, investors were buoyant, and ‘uncertainty’ seemed to be running at all-time lows. That changed abruptly just a few short months later, as we all remember.
My point in recounting this is that uncertainty never goes away. A good investment strategy is built knowing that uncertainty is a permanent feature of stock markets. That is why markets provide higher returns over the long run, even if it doesn’t always feel good. If your investment strategy has to change when markets become more ‘uncertain’, then you don’t really have a strategy in the first place. Markets are always uncertain, even when they don’t feel that way. Late 2019 was a perfect example. Despite the world feeling better, disaster was right around the corner.
PWL’s investment philosophy has been tested in the most ‘uncertain’ times stock markets have ever known, like the Great Financial Crisis of 2008/2009, or the global pandemic in 2020. We know these crashes happen and we know we can’t predict when they will, so we build portfolios that we know will survive them, even when it feels like the world is falling apart.
Here is what the various asset classes in your portfolios have returned during the first quarter of 2025 (all returns are in Canadian dollars):
As you can see, international diversification is playing a very important role in portfolios this year, providing an excellent counterbalance to the poorly performing US stock market. As such, portfolio performances are generally flat for the first quarter.
We don’t know where the world, or stock markets, will go from here, but we do know that our investment strategy was designed to handle the worst that markets can throw at us.
As always, don’t hesitate to reach out to your advisor with any questions or concerns.
Source: Dimensional, PWL Capital
