This year was nuts both in markets,

which I'll get into in a minute, and

personally for me. I had testicular

cancer down to one testicle now. I had

surgery on the same day in January that

PWL Capital, the firm that I've worked

for for 12 years, announced it had been

acquired by One Digital. We were

previously a small privately owned

Canadian firm, now owned by a much

larger American firm. as a PWL Capital

shareholder and employee. The

acquisition was actually good news and

it's unleashed PWL's potential to

improve our offering and expand across

Canada, which has been a ton of fun.

Okay, my personal news aside, 2025 was a

wild ride. Early in the year, it looked

like we were in for a bad time, but

things turned around and returns in

stocks, gold, Bitcoin, and real estate

were not what anyone was expecting. I'm

Ben Felix, chief investment officer at

PWL Capital, and I'm going to tell you

what we can learn from 2025.

I want to say a quick thank you to

everyone watching. This channel had by

far the most views and largest increase

in subscribers since I started posting

videos here back in 2017. I'm grateful

that you all like to nerd out with me

and hope we can keep it going in 2026.

In this video, I want to talk about some

of the unexpected things that happened

in 2025 that I think investors can learn

from. I was having a lot of

conversations in late 2024 with people

who wanted to go allin on the US stock

market, either abandoning international

diversification entirely or reducing

their exposure to Canadian and

international stocks in favor of more US

exposure. This wasn't really surprising.

At the end of 2024, the US market had

been crushing other markets for years.

For example, for the 5 years ending

December 31st, 2024, the US market had

outperformed the Canadian market by

nearly 5 percentage points annualized.

And it outperformed international,

developed, and emerging markets by an

even wider margin, all measured in

Canadian dollars. And that's just five

years. Go back further 10 years, it was

still a big outperformance in the US. In

addition to that, there was plenty of

doom and gloom about Canada's stock

market and Canada's economy. We had a

productivity crisis. We had a proposed

hike to our capital gains inclusion

rate. Uh capital was fleeing the country

when Trump was elected as the 47th

president of the United States and

started threatening tariffs that could

damage Canada's economy further. All of

those concerns were exacerbated. I'm not

suggesting these not real economic

issues. They are. But if you had read

these headlines and then not looked at

the stock market all year, you would

probably assume the Canadian market went

on to have a terrible year. That

assumption would be wrong. As of

December 17th, 2025, a Canadian stock

market index fund had returned 29.46%

since January 1st, 2025, placing it

ahead of international, developed, and

emerging markets and more than tripling

the Canadian dollar return on a US total

market index fund. Missing a big year

like that is hard to come back from. I

think there are a couple of important

lessons here. One is that the stock

market is not the economy. The stock

market price is forward-looking

information about the expected future

cash flows of businesses. The economy

does affect those expected future cash

flows, but economic data are

backward-looking. By the time we hear a

headline about Canada's economy, the

market has likely already priced it in

months prior. If economic data end up

being bad, but better than what the

market had been expecting, we can even

see a rise in stock prices on bad

economic news. It's crazy to think

about. This makes basing investment

decisions on economic news a pretty bad

idea most of the time. The other related

lesson is that while the future is hard

enough to predict, future stock returns

are probably even harder. Some news like

unexpected tariffs can affect stock

prices in the short term. Looking back

to early 2025, it seemed like tariffs

would be putting significant downward

pressure on all stock markets. Again,

the market is always looking ahead. A

shock like tariffs can result in stock

prices falling on the news. But as new

information about the actual impact of

tariffs become known, markets adjust.

The US stock market was down more than

16% in Canadian dollar terms in April

2025. One of the things I said in a

video earlier this year around that time

looking at historical data for the US

stock market was that negative

intra-year returns don't always predict

ne negative returns for the year. It's

not uncommon for stocks to enter

negative territory at some point during

the year while then finishing the year

with positive returns. And that is

exactly what we saw in 2025. This is one

of the many reasons that sticking to

your long-term plan is generally much

better than trying to get in and out of

the market or otherwise changing your

portfolio based on whatever might be

happening in the world around you. I

think the other big lesson here is that

international diversification is still

not dead. There's been an increasing

perception that the US stock market is

the only market that anyone needs to

invest in. I and many other people

smarter than me have been saying for

years now that international

diversification continues to be one of

the most important principles for

long-term investors. Despite the recent

outperformance of the US market, 2025

was a good reminder of why this is true.

A single country stock market, including

the US market, can go through both short

and long periods of poor performance.

The US lost decade wasn't all that long

ago, but it's easily forgotten. In those

periods, international diversification

often pays off as it did this year.

Canada's incredible stock returns this

year seem to have largely gone

unnoticed. The the other story that I

have not seen mentioned much is the

returns of Canadian value and small cap

value stocks, which have had an even

bigger year than the Canadian market as

a whole. The EyesShares S&P TSX Small

Cap Index ETF returned 47.94%

from January 1st through December 17th,

2025. And the Eyesshar's Canadian Value

Index ETF returned 33.63%.

I know it doesn't make sense to focus on

one year of returns. But the crazy thing

here is that if we looked at the data a

year ago, the 10-year returns of

Canadian value and small cap stocks

trailed the market. Value stocks were

only a little bit behind. Small caps

were way behind. Fast forwarding to

December 17th, 2025. So now we're

looking at just under 11 years of data

from the same starting point. Canadian

value has now outperformed for the full

period. And while small caps are still

trailing the market, it's a lot closer

than it was. The lesson here is that if

you believe in an investment strategy,

staying in your seat is extremely

important. Returns often come in short

spurts. Missing out on them is easy to

do if you don't stay invested. And

missing out is very hard to recover

from. It's kind of like getting up to P

during a hockey game and missing a big

goal. The small cap and value examples

are of particular interest to me. While

I am a big believer in total market

index funds, and I talk about them on

this channel all the time, that is not

how I invest my money or the money of

most of PW Capital's clients. We use

funds from a company called Dimensional

Fund Advisors, which look a lot like

total market index funds, but they tilt

toward small cap value and highly

profitable companies. That approach has

struggled at times in recent history,

but the dimensional Canadian equity

funds similarly had a big year in 2025

due to their exposures. People get

annoyed when I bring up Dimensional

Funds because they're not available

directly to DIY retail investors in

Canada. But on that point, I have some

really good news. Avantis Investors, a

direct competitor to Dimensional Fund

Advisors, is partnering with CIBC to

launch a suite of Canadian listed ETFs.

Like dimensional avantis funds are very

similar to index funds in principle.

They're lowcost, broadly diversified and

tax efficient, but they have a more

flexible implementation approach. And

unlike a total market index fund, which

holds stocks at their market

capitalization weights, Avantis uses

financial economic theory and evidence

to tilt toward small cap value and

highly profitable stocks. These tilts

are designed to increase expected

long-term returns. The big development

here is that while dimensional funds in

Canada are only available through

advisors like PWO Capital, Avantis ETFs

will be available directly to retail

investors. I used US listed Avantis ETFs

in my old model portfolios that were

designed to give retail investors in

Canada a way to implement this

investment approach. I will definitely

make a dedicated video when I have

something more to talk about. We do know

the fees listed in the preliminary

perspectus which look very reasonable.

The Avantis CIBC all equity asset

allocation ETF has an annual management

fee of 0.28%.

This is not the ME to be clear. The

management expense ratio which includes

other costs and taxes in it. For

example, XEQT has a management fee of

0.18% and an MER management expense

ratio of 0.2%.

Even if the Avantis fund comes in at

0.35%

uh for the ME, it still looks pretty

good for what you're getting. It's like

a like an asset allocation fund that

looks a lot like VEQT or XEQT, but it's

got built-in tilts towards small cap

value and high profitability stocks.

Based on the preliminary perspectus, it

will have a long-term strategic asset

mix of 45% US stocks, 32% Canadian, 15%

international developed, and 8% emerging

markets. Again, very similar to an XEQT

or a VEQT. This is definitely a

development to watch in 2026 if you're

as much of a nerd as I am. To be clear,

I'm not affiliated with or being paid by

Avantis, and I gain nothing from you

using their products in Canada or in the

US. I just think this is good news for

the nerdiest of us Canadian investors

who want an easy to use, evidence-based

alternative to lowcost total market

index funds. Gold has had an incredible

year. The iShares Gold Bullion ETF

returned 57.53%

in Canadian dollar terms from January

1st through December 17, 2025. I have

never been a proponent of holding gold

in portfolios for the simple reason that

it's not a productive asset with a

meaningfully positive expected return.

Gold has long-term returns, by

long-term, I mean a 100 years or longer,

roughly in line with inflation, maybe a

little higher. short-term returns that

fluctuate wildly around its real value

and a mixed track record as a hedge

against bad markets and inflation. Its

place in a portfolio is not obvious to

me unless you have a belief that its

price will go up while you hold it,

which to be fair worked out great for

people who are holding it this year. As

Warren Buffett has said, what motivates

most gold purchasers is their belief

that the ranks of the fearful will grow.

It makes sense to buy gold if you think

other people are going to want to buy

gold in the future. I don't love that

reason to invest in something which is

why I don't hold it or suggest holding

it. The question I keep getting based on

gold's returns this year is whether my

views on gold have changed in light of

its recent performance. I am totally

open to updating my beliefs when I

receive new information. But I would not

consider high short-term returns to be

sufficient new information to update a

prior belief that gold has low expected

returns. Academic research using huge

amounts of data and applying economic

theory suggests that gold has an

expected return of around 1% above

inflation. And that's on the high end of

the estimates I've seen, which is

roughly what it historical return has

been, at least over the sample period in

that paper. When we look back through

history, gold has had big jumps in price

before. And the most common outcome of

the resulting high gold prices is lower

future gold returns, bringing its real

value and its long-term returns back in

line with its long-term historical

performance. I'm not predicting a gold

crash, but I think the data on this do

warrant caution for anyone who's enticed

by its recent returns. If you have been

holding gold, congratulations on a great

year. If you're looking at gold's recent

high returns and just now considering

buying gold, I think it's worth

remembering that investors have a

tendency to buy things after they've

done well and sell after they have done

poorly, leading to bad investment

outcomes. I don't mean that nobody

should invest in gold right now, but I

do mean that you should have a very good

understanding of why you want to invest

in gold right now, other than the fact

that it's gone up a whole bunch

recently. And keep in mind that the base

rate expected long-term return for gold

is low. Bitcoin went in the opposite

direction this year. The purpose Bitcoin

ETF dropped 13.09% in Canadian dollar

terms from January through December

17th, 2025. For similar reasons to gold,

I have never been a proponent of

including Bitcoin in long-term

portfolios. This one bad year doesn't

prove anything. It doesn't mean I was

right. Obviously, Bitcoin's gone up a

ton other than this year so far. Uh, but

Bitcoin's divergence from gold over a

period with lots of geopolitical

uncertainty where Bitcoin's kind of

meant to shine was pretty interesting to

see. We'll we'll see what happens in the

future. Another story from 2025 that I

don't think is getting enough attention

is the continued drop in real estate

prices and rents in some of Canada's

largest cities. It was not that long ago

that real estate going up seemed like a

constant fact of life in Canada and

rents going up. But things like changes

to our immigration policies and a rise

in interest rates have put a ton of

pressure on the demand for housing in

some cities. From the 2022 peak,

composite real estate prices in Toronto,

that's combining all types of housing in

Toronto, had fallen nearly 26% through

November 2025. From January through

November 2025, so just this year up

until November, that drop was 6.5

percentage points. A common narrative

that I've heard here is that most of

this drop is coming from the tiny shoe

box apartments that were overbuilt in

Toronto. But the peakto trough drop in

single family homes has actually been

larger in percentage terms than the drop

for apartments. Prices in other cities

have been more resilient, but 2025 was a

tough year across the board. An

interesting related topic is the status

of hypothetical renter and owner wealth

across Canada. Earlier this year, I did

a video and a paper comparing a

hypothetical renter and owner in 12

Canadian cities using real data on

rents, house prices, inflation, and

stock returns from 2005 through 2024.

So, I had this hypothetical uh renter

who was deciding, do I keep renting or

do I buy a house? And if they kept

renting, they invested in the stock

market. If they bought, they they bought

the house. And then they saved and

invested. The renter saved and invested

the cost difference between renting and

owning over time. that I just tracked

who how did their wealth evolve over

this full period. The analysis at that

time showed mixed results with renting

leading to more wealth in some cities

but not in others. And on average across

all cities that I looked at, it was

basically a tie. There was a tiny tiny

advantage for owning. I measured the

outcome as the ratio of renter wealth to

owner wealth. So a number above one

means that renters were better off and

below one means the owners were better

off. the average owner uh the average

rent to owner wealth ratio as you can

see is was 0.99 at the end of 2024 and

then so far in 2025 real estate is down

as I mentioned rents are flat or maybe

down a bit and stock markets are way up

now I will do a full update once I have

the year-end data for 2025 but as of

November renting is beating owning on

average across the 12 cities with an

average renter to owner wealth ratio of

1.14

Again, above one means renters have more

wealth than owners on average across

these 12 cities. In some cities that

previously had a huge advantage for

owners over renters in this sample, like

over the original 2005 to 2024 sample,

Victorian Kitchener being the big

Kitchener Waterlue being the biggest

examples, that gap, the the wealth gap

between owners and renters has narrowed

to close to zero. I want to be clear

that this does not mean that owning a

place to live is bad. I own my house.

I've probably taken a beating

financially recently, too. I'm okay with

that because I like my house. My point

on renting and versus owning has always

been that renting is not a bad financial

decision as long as the renter saves

diligently and and invests in a

portfolio with sufficiently high

expected returns like a total stock

market index fund portfolio. 2025 has

put an exclamation point on that point.

Right now, as the year comes to a close,

investors seem to be mostly worried

about the high valuations and market

concentration in the US stock market.

The top seven stocks in the US market

make up 32% of the market's total value,

which is the highest level of market

concentration going back to 1927.

I don't think that market concentration

is something to worry about. Many other

countries around the world have had and

currently do have more concentrated

stock markets than the US market without

it resulting in poor returns for those

countries. Even within the US market,

the historical relationship between

current market concentration and future

returns is weak at best and

statistically insignificant. High stock

valuations could be more of an issue.

Historically, looking at 10 developed

countries, there is a clear relationship

between high current valuations and low

future returns. The relationship is not

statistically reliable, but it's clearly

there. You can see in the chart. The

thing is even if valuations do have some

information about future returns, they

do not predict the future. It's possible

for high current valuations to be

followed by high future returns as the

US market has proven in recent history

and other countries have demonstrated in

the past. I don't think high stock

valuations are a market timing signal.

They they don't say you should get out

of this stock market right now, but they

should lead to more moderate expected

returns for that stock market. when

you're thinking about what returns do I

expect from this part of my portfolio, a

country with high stock valuations, you

might want to use lower expected

returns, but that doesn't mean that the

future returns are actually going to be

low. So, I wouldn't suggest trying to

time the market based on that

information. The last comment I have as

we close out 2025 is that investors are

being increasingly inundated with what

I'm calling ETF slop. issuers, ETF, ETF

issuers are launching a ton of complex

and risky ETFs and marketing them really

aggressively to retail investors through

influencer campaigns and social media

ads. I'm pretty confident saying that

most investors don't need buffer ETFs,

which I will do a video on next year,

single stock covered call ETFs,

leveraged single stock ETFs, or

leveraged covered call ETFs. Like, what

are we even doing? The ETF industry

needs to make money, which is fine.

Lowcost index funds are not a profitable

business for most ETF issuers. Index

funds are literally available for free,

at least in one case from Fidelity. The

result is that issuers who want to make

money need to come up with products that

they can charge higher fees on and that

investors will want to buy. We end up

with a whole bunch of ETF products

designed to cater to the emotional and

cognitive biases of investors, not to

give them the best chance at meeting

their long-term financial goals. I'm Ben

Felix, chief investment officer at PWL

Capital.