My Investment Return for 2025

The 2025 investment return for my overall portfolio measured in Canadian dollars was 13.7%, which is below my 2025 benchmark return of 16.0%.  There are two main reasons for this difference.  The first is that we made a large financial gift, and the timing of our stock sale to raise cash for this gift was unlucky.  

The second reason is my decision a few years ago to shift gradually away from stocks when stock prices are high as measured by the cyclically adjusted price-to-earnings ratio (CAPE) of world stocks.  This shift is tied to my rebalancing plan that is automated in a spreadsheet.  My benchmark doesn’t do any automated shifting away from expensive stocks.

This year, stock prices were high but they gave good returns anyway, and my slightly lower than usual allocation to stocks cost me money.  This has happened two years in a row now.  But I’m content with this outcome.  By shifting modestly away from stocks when they’re expensive, my portfolio risk is lower at a time when stocks are riskiest.  I don’t expect my strategy to pay off during normal times.  I’m reducing my losses if we have a scenario where stock prices are high, and then they crash.  This is a kind of insurance, and it has a price during normal times.

Another reason to control risk is that, in a sense, I’ve already won the game.  I retired 8.5 years ago having saved up enough to cover my desired spending for the rest of my life with enough of a buffer to cover a 25% or 30% stock crash shortly after I retired.  I was protecting myself from sequence-of-returns risk.  

Instead of a stock crash, my compound average annual return since retiring has been 6.5% above inflation. I got the upside of sequence-of-returns risk. As a result, my need to take on investment risk has diminished significantly.  It’s comforting to know that I’ll be fine whether stocks keep climbing to the sky or they come crashing back down to earth.  I don’t waste any time trying to guess which will happen this coming year.

The following chart shows my cumulative real (above inflation) returns since I began controlling my own investments.

Over this full period my compound average real return has been 8.0%.  A big chunk of this is due to some extremely risky bets I made in 1999 that paid off.  In normal times, I expect the compound average real return of stocks (for planning purposes) to be 4% less investment costs.  

At the current CAPE level of the world’s stocks, my compound average real return expectation from stocks is only about 2.6% for the rest of my life.  This is based on the assumption that average worldwide corporate earnings will rise at 4% real, but that the blended CAPE of world stocks will decline to 20 by the end of my life.

Although I look decades out to make a plan, I only commit to this year’s spending level.  Whatever happens in the markets makes me update all the planning numbers (all automated in a spreadsheet).  This means I adapt my spending level to what the markets do rather than commit to a real spending level for the rest of my life.

This flexibility makes it safer to spend a little more from my portfolio right now.  The less flexible you are with your spending level each year in retirement, the lower your return expectations need to be for planning purposes.