Q2 2025 – Newsletter Insights

perspectives on The Loonie’s Decline

Food for Thought: A Weaker Canadian Dollar

The Canadian dollar’s (CAD) weakness has raised questions about its broader impact and the path forward:

The CAD is trading below its historical average. To start 2025, it fell below 68 U.S. cents—a level not seen in two decades. The decline has been driven by factors such as diverging U.S. and Canadian monetary policies (lower interest rates make the CAD less attractive to foreign investors), ongoing tariff threats and a strong U.S. dollar. Historically, the CAD has moved in cycles. From 2005 to 2014, it benefitted from strong resource demand, surpassing parity with the U.S. dollar (USD) in 2007 and peaking at US$1.09. Over 50 years, it has averaged around US$0.80.¹

Will the loonie continue its fall? The “Big Mac Index” may offer some fun “food for thought.” Published by The Economist, it was developed as a lighthearted way to make exchange-rate theory digestible by comparing the purchasing power parity (PPP) of currencies. PPP suggests that, over time, exchange rates should adjust so that an identical basket of goods and services costs the same in each country. The index estimates an exchange rate by comparing the price of a Big Mac in different nations to its cost in the U.S. By comparing this to the prevailing exchange rate, it gauges whether a currency is under- or overvalued. According to the index, the CAD is undervalued (chart).

What does this mean for investors? Currency swings can impact returns on foreign-denominated investments when converted to Canadian dollars. A notable example occurred between 2000 and 2009—a period with parallels to today. At the start of 2000, U.S. equity markets were at record highs amid the dot-com boom, while the CAD traded below 70 cents USD. If an investor put CAD into the S&P 500 Index in early 2000, they would have experienced a loss—not just due to the market downturn, but also due to currency appreciation. By December 2009, the S&P 500 declined by 24.1 percent, but over the same period, the CAD appreciated by 38 percent. When converting investments back to CAD, the loss would have been 45 percent.

Over the long run, currency fluctuations tend to even out in well-diversified global portfolios, as gains in one currency can offset losses in another. There are also ways to mitigate currency risk directly, depending on an investor’s objectives, such as by using currency-hedged investment funds or Canadian Depository Receipts, which allow investors to buy foreign stocks on Canadian exchanges in CAD.

Investing C$1,000 in S&P 500 Index, 2000 to 2009

1. https://ca.investing.com/currencies/usd-cad-historical-data; 2. https://github.com/TheEconomist/big-mac-data/tree/master/output-data

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During Uncertain Times:

The Value of Disciplined Investing

As we have entered a new era of uncertainty, with an evolving trade war, slower economic growth and significant geopolitical conflict emerging regularly from south of the border, it’s worth a reminder: Your portfolio has been structured to provide solid risk-adjusted returns over the long term, with the expectation that markets will experience both up and down periods along the way.

Navigating Choppy Waters

In times like these, discipline plays an important role in investing. As advisors, it’s our role to stay unemotional and keep focused on building portfolios based on research and fundamentals.

The dilemma, of course, is that human nature often compels many investors to want to take immediate action when faced with adverse conditions. It’s a natural response, as we are innately hard-wired to react for survival. However, sometimes the best course of action is to do nothing at all.

While it might feel like the right response to exit the markets when things get tough, the opportunity cost of doing so—when markets reverse their course, often unexpectedly—can have a profound impact on future wealth. Missing out on even a few days of good performance can have a detrimental effect on a portfolio. The chart below shows the impact on the S&P 500 Index over 10 years ending August 31, 2023. Indeed, doing nothing…is doing something!

The Investment Impact of Missing the Best Market Days

Investing $100,000 Over 10 Years Ending 8/31/23 in the S&P 500 Index

Consider also a study of nearly 120,000 investors in the U.S. which found that a well-structured wealth plan alongside the support of an advisor can be key to staying the course. During the 2020 pandemic, when the U.S. stock market fell 34 percent in just 22 days, over three-quarters of investors who were previously on track with their financial goals remained on target, even though their portfolios typically declined by 16 percent (and quickly rebounded).¹

Having a sound financial plan provides a crucial roadmap, but during more challenging market times, support to navigate the uncertainties is important to help keep you on track. Studies have attempted to quantify the value of this support, with one study suggesting that behavioural coaching alone can provide an average annualized return of at least 3.4 percent.² This highlights the substantial impact of investor behavior on returns.

Staying invested is important, but consistently saving is also critical. Part of our role is to encourage disciplined savings and investment habits, which can significantly improve wealth over time. Just as a personal trainer helps clients stay committed to fitness goals, We are here to help ensure consistency and focus along the financial journey, throughout the inevitable market ups and downs. Studies show that households working with an advisor for 15 years or more accumulate 2.3 times the assets of those without advisor support.³

Looking Beyond Investing

Wealth management is about more than just investing and it evolves at each stage of life—from goal planning, such as saving for a first home or child’s education, to investment tax planning, retirement planning, business building and succession, estate and legacy planning and intergenerational wealth transfer. We offer access to a network of experts who can provide specialized support where needed. We are also committed to being a resource for you, providing education and insights on factors impacting your wealth so you can make informed decisions. This newsletter is just one way to deliver actionable insights to help better manage your financial position.

As we navigate these uncertain economic times, we are here to support you to make informed decisions, manage risk and maintain focus on your longer-term financial goals. We remain grateful for your continued trust in our services as we build a secure and prosperous future.

1. https://www.morganstanley.com/articles/stock-market-crash-financial-planning; 2. https://russellinvestments.com/-/media/files/au/support/voa/voa_report_2023.pdf; 3. https://cirano.qc.ca/files/publications/2020RP-04.pdf

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