The following strategies guide our advice to clients and are reflected in the positioning of the Founders Fund.
Like we’ve done in the Founders Fund, we suggest investors stick close to their long-term target of stocks and bonds. This may require some rebalancing given the rebound in equity markets. Investors drawing from their portfolio, including those enrolled in the Steadyhand Retirement Withdrawal Program, should top up their spending reserve. We recommend investors have two years' worth of expenses set aside in the reserve (please contact us if you’d like to learn more about the program).
Concerns about tariffs have shaken the equity market early in the year, but they have been on an upward trajectory since.
Our defensive positioning helped our balanced portfolios weather the storm well, and our rebalancing has allowed us to participate in the rebound. Our portfolios have limited exposure to resource companies or U.S. mega-cap stocks, which have been the biggest drivers of recent market moves. Our managers focus on building diversified portfolios of profitable companies selling at reasonable prices. In the Founders Fund, our weighting in equities is right at our strategic target of 59%. We’re holding 35% in bonds, which is in line with our target, and 7% in cash.
Bonds
The risk versus return trade-off for bonds is in line with long-term averages, but returns are likely to come with higher volatility than investors have been accustomed to, as yields react to changes in interest rate expectations and central bank activity. Over the next five years, we expect bonds to return between 3–5% per year, which translates to a 15–25% cumulative return.
Bonds remain an important tool for most clients. They can provide safety when stocks are volatile, and as such, are a diversifier for a balanced portfolio.
In the Founders Fund, we’re at our target weight in bonds (35%). We continue to hold an above-target weighting in cash (7%), which provides some defence and gives the fund liquidity. Much of the cash is invested in short-term investments such as T-Bills, which are currently yielding approximately 2.5%.
Stocks
Our outlook for 5-year stock market returns is 5–7% per year (or 25–40% cumulative), which is below the historical average for long-term equity returns. Stocks continue to trade at elevated levels. Additionally, global markets have become increasingly concentrated in U.S. mega-cap companies, making declines in these stocks more impactful on global returns than in past years.
The Founders Fund does not own the market. It owns a diversified mix of stocks that are profitable and are trading at better valuations than many areas of the market.