Four Investing Lessons to Take Into 2025

If there’s one thing investors can count on, it’s that the markets and the economy are never dull. Between falling inflation (finally), a slowing Canadian economy and a market that’s seen many stocks soar – both the S&P/TSX Composite and the S&P 500 rose to record highs – there have been plenty of events to capture investors’ attention this year.

But what can the past year teach us? We’ve once again turned to Eric Lascelles, RBC Global Asset Management’s Chief Economist, for his take on what wisdom from 2024 we can take into 2025 and beyond.

Lesson #1: The market is not the economy

If you only paid attention to global markets this year – both bond and stock markets – you would have felt pretty good about your finances. Between January and November, the S&P 500 has risen by about 27 per cent, and the S&P/TSX Composite Index has increased more than 20 per cent. Bond prices have also climbed as yields have come down. Yet, most Canadians say they don’t feel financially resilient.¹

This may, in part, be because the Canadian economy has struggled, with third-quarter GDP growth coming in at just 1 per cent.² (The U.S. economy, by comparison, expanded by 2.8 per cent in Q3.) The reason for the disconnect, says Lascelles, is that markets tend to be forward-looking – they may be predicting better economic times ahead – and they’re also driven by numerous factors, including valuations and individual company performance. The lesson here is that it’s possible for your portfolio growth to outpace the economy’s growth. “We can feel unhappy with the economy and acknowledge that it makes sense for markets to be up,” notes Lascelles. “It’s important to be aware of that.”

Lesson #2: Uncertainty doesn’t always equal volatility

Many investors have likely heard the term “markets hate uncertainty”. And while that can be true – after all, stocks did drop more than 30 per cent when COVID-19 lockdowns began – it’s not always the case. This past year for example, markets were up despite considerable uncertainty: there was war in the Middle East, continued tensions between Russia and Ukraine, a major U.S. election (in fact, there were more elections in 2024 around the world than in any year before),³ inflation concerns and more. “Markets can thrive and do fine during periods of uncertainty,” says Lascelles. “It’s fair to say uncertainty is not guaranteed to squash growth.”

What does this mean for investors? It’s more evidence that chaos isn’t necessarily bad. It’s not always easy, but you can manage your emotions in unpredictable times.

Lesson #3: Don’t count Canada out

Broadly speaking, it’s been a bit of a rough go for our home and native land these past few years, says Lascelles. A lot has been said about the nation’s lack of productivity and slow-growing economy, as well as the impact increased immigration has had on housing prices.⁴ “I do wonder whether we’re near peak pessimism on Canada,” says Lascelles. Canada’s stock market has also disappointed in the past two years, with an 8.12 per cent gain in 2023⁵ and an 8.6 percent loss in 2022.⁶ But after a strong year for Canadian stocks, things might be looking up.

Falling interest rates should ease the financial burden on Canadian homeowners; those who have to renew next year will re-up at lower levels than they would have a year ago. Canadians have also saved more money recently,⁷ and could therefore potentially start spending more, which would boost our economy and corporate earnings. The country also has a smaller deficit and lower public debt levels than other G7 countries,⁸ and a Canadian election in October 2025 – or sooner – could help kick-start a renewed focus on economic growth, says Lascelles. This could come as good news for Canadians, who tend to have a portfolio more heavily weighted to domestic stocks than other countries. “Canada may be working past some of the most challenging economic factors right now,” Lascelles says.

Lesson #4: Bonds are here to stay

Bonds made a comeback in 2023, and now it seems as though fixed income is here to stay. While interest rates are expected to go down even more, Lascelles thinks they will likely settle into a range that will still allow investors to earn a decent yield on their investments. That’s quite a change from most of the past decade when bonds often helped balance out a portfolio’s ups and downs over time, but likely didn’t provide much in the way of income. “For the better part of 10 to 15 years, yields were so strikingly low that it was very hard to generate a return, and even harder to generate a positive real return,” Lascelles explains. “Everyone is now recalibrating to what a normal interest rate is. It appears to be a fair bit higher than it was in the 2010s, so the opportunity to potentially earn a moderate return in the bond market may exist again.”

All in all, 2024 was positive for investing. “A wide range of investors did well this year,” he notes. “Equities, fixed income, other kinds of credit and cash investments all made money.”


^1. _{Source: Financial Resilience Institute, "Index shows only 24% of Canadians are Financially Resilient. 76% of Canadians have financial vulnerability}

_{and financial stress levels remain high", October 2023}

^2. _{Source: CBC, "Canada's economy grew 1% in the third quarter from higher government, household spending", November 2024}

^3. _{Source: World Economic Forum, "2024 is a record year for elections. Here's what you need to know", December 2023}

^4. _{Source: RBC Thought Leadership, "Immigration cuts will help narrow Canada's housing gap but won't solve crisis", November 2024}

^5. _{Data taken from S&P Capital IQ}

^6. _{Data taken from S&P Capital IQ}

^7. _{Source: Trading Economics, "Canada Household Saving Rate", 2024}

^8. _{Source: Statista, "Government net debt of G7 countries as share of GDP from 2010 to 2024, by country, 2024}