2025: A Year of Two Economies
As we close the books on 2025 and step into a new year, it’s worth taking a step back — not just to look at market returns, but at how the economy actually felt.
On the surface, markets had a strong year. Major indexes finished higher, and a small group of companies posted impressive gains. But for many households and businesses, day-to-day life felt very different.
This is what’s often called a K-shaped economy — where one side keeps moving up, while the other struggles to keep pace. In plain terms:
A narrow group of large companies did very well, while much of the broader economy moved more slowly.
This theme shaped much of 2025, and it’s why we stayed focused on balance rather than chasing what was already crowded.
Chart: Market performance vs. broader economic sentiment
December: Ending the Year with Discipline
December didn’t bring major surprises — instead, it confirmed the tone of the year.
Inflation continued to cool compared to earlier highs, but everyday costs like housing and services remained stubborn. Central banks stayed cautious, signalling that rate cuts would come gradually rather than all at once.
Markets were driven more by profit-taking and positioning than by new economic developments. After a strong year, that kind of pause is healthy.
The lesson from December — and from 2025 as a whole — was clear:
This is an environment that rewards patience, balance, and discipline.
2025 was not a year that rewarded broad participation. It was a year that rewarded intentional positioning.
Positioning Going Into the Year
Just before 2025 began, we positioned portfolios to participate in growth while maintaining flexibility. We increased exposure to:
- The largest U.S. companies through the S&P 500
- U.S. technology through the Nasdaq
- Canadian equities through the TSX
- High-quality dividend-paying companies across Canada and the U.S.
- U.S. small-cap stocks, in anticipation that declining interest rates would eventually benefit smaller companies
At the same time, we deliberately kept some cash on hand, recognizing that valuations were elevated and uncertainty remained high.
Spring: Adding Protection and Stability
As volatility picked up early in the year — particularly in bond markets — we focused on strengthening portfolio resilience.
In the spring, we:
- Added gold and silver exposure through our Compass Alternative Income Fund, enhancing defensiveness and inflation protection
- Continued increasing private debt exposure, including private mortgages and private business credit, to support steadier income and reduce reliance on public markets
These decisions helped buffer portfolios during periods of market stress and reinforced the importance of assets that behave differently than traditional stocks and bonds.
Gold vs Dollar Supply
Mid-Year: Broadening Beyond North America
As the year progressed, market leadership became increasingly concentrated in a small group of U.S. companies. Rather than increasing exposure in already crowded areas, we chose to broaden diversification.
We added exposure outside North America, including:
- Europe
- Manufacturing-driven growth in India
- Select technology exposure in China
This helped reduce concentration risk and align portfolios with longer-term global economic shifts.
S&P500 vs Global Indices
November: Taking Profits and Reducing Risk
By late 2025, U.S. equities — particularly technology — had delivered double-digit gains, and valuations in parts of the market felt stretched.
In November, we:
- Reduced exposure to the S&P 500 and Nasdaq
- Took profits where gains had been concentrated
- Lowered overall risk in North American equities
This wasn’t a move away from growth — it was a disciplined step to protect gains and rebalance portfolios after a strong run.
Where We Finished the Year
We end 2025:
- With the Compass Equity Portfolio outperforming the S&P 500
- With lower overall risk than broad market indices
- With meaningful cash available
- More diversified across asset classes, regions, and income sources
We expect to start 2026 with roughly 20% in cash. Cash doesn’t get much attention — but it gives us flexibility when real opportunities appear.
Compass Equity vs S&P500
Beyond Investments: Progress Behind the Scenes
2025 was also a year of improvement beyond portfolios.
We expanded our financial and estate planning work, including:
- Clearer cash-flow analysis
- Better net-worth projections
- More thoughtful estate planning conversations, focused on real-life family goals
We also improved our internal systems and CRM, helping us stay more organized, proactive, and responsive — even if most of that work happens quietly in the background.
Looking Ahead to 2026
If 2025 taught us anything, it’s that strong markets and uneven economies can exist at the same time — and that discipline matters most when enthusiasm runs high.
Our focus going into 2026 remains simple:
- Protect capital
- Generate steady income
- Diversify thoughtfully
- Stay patient and data-driven
Markets may move around. Your plan shouldn’t.
A Personal Note
We want to thank you for the trust you placed in us throughout 2025. We don’t take that lightly. Whether markets are calm or choppy, our role is to help you stay steady, informed, and confident in your plan.
We’re grateful to move into the new year with you and look forward to what’s ahead.
Warm regards,
The Compass Team
Wealth. Wisdom. Purpose.
