Lexicon Financial Group Weekly Update — May 21, 2025

May 21

“A good rule of thumb is to assume that everything matters.”

— Richard Thaler, American economist and theorist in behavioural economics

From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel

Looking Around

There are differing stories about the origin of the phrase “rule of thumb”, but generally it refers to a quick and basic way to make an estimate. Some suggest that the phrase originated because the width of a human thumb is approximately one inch, which made it acceptable for a rough measurement in construction. Not exactly accurate -- good enough for some things, but not precise enough for other applications.

A rule of thumb is different from wisdom that is passed down over generations. “Measure twice, cut once” is good advice for carpenters. It’s not an estimate or a guess, rather it is a guideline or maxim on how to do things properly.

Many industries have their own “rules of thumb” – information guidelines based on experience rather than actual measurement or science, and financial and investment management is no different. Some rules of thumb we like, some we don’t. Here are a few:

Rule of 72: To estimate how long it takes to double your money, divide 72 by the interest rate. If you earn four per cent interest annually, it will take 18 years for initial investment to double. It’s a good, fast way to understand that if an investment earns 10 per cent, it will take 7.2 years to double!
Four per cent withdrawal rate: This is based on work done in the 1990s by William Bengen, a financial advisor in the United States (U.S.). He analyzed historical U.S. market data, including stock and bond returns, to determine a withdrawal rate that would allow people to retire and avoid running out of money over a 30-year period. He concluded that an investor could withdraw four per cent (even adjusted for inflation) and never run out of money. This is, in large part, because annual portfolio returns for a balanced portfolio during the period he measured exceeded four per cent. Past performance, however, is not a good predictor of future performance, as you may know.
Total equity allocation should be 100 minus your age: This rule of thumb is not one we like at all. This is based on the idea that as you age, you should be investing more conservatively, since portfolios don’t have as much time to recover from market downturns. However, this doesn’t take into account that individuals may have other sources of income or their goals may not exactly conform to a specific model or framework. We believe everyone is an individual, and many people have different goals and objectives for their investment portfolios that are not tied to their age. Consider an older investor who doesn’t require an investment portfolio to fund their lifestyle. Should they be restricted in what they invest in, based on their age? We do not think so. (1)

When making any decision, using a rule of thumb to approximate a solution is, at best, only a first step. To provide proper analysis, we need to dig a little deeper and do more work. Fortunately, technology has given us tools to perform complex or repetitive mathematical calculations more precisely, quickly and easily today. Analysis that would have taken a significant amount of time a decade ago is now available at the push of a button. Want to know how long it will take for a portfolio to double, if interest rates are 4.5 per cent, compounded monthly, with two per cent being withdrawn annually? Not as long as it took in the past. It’s approximately 22 years, in case you wanted to know.

Read and Watch

Want deeper insight into topics in your Weekly Update? Then, read and/or right click:

Will Tariffs Derail Canada’s Economic Recovery?

EU economy projected to moderately grow amid global economic uncertainty

Japan’s economy contracts for first time in a year as exports fall, shrinking by a more than expected 0.2%

China's factory output resists tariff impact, retail sales disappoint

Raymond James Markets & Investing: Market turnaround raises question: Where do we go from here? - CIO Larry Adam, May 16, 2025

Raymond James Economy & Policy: Better tariff news, but uncertainty to limit potential benefits near term - Chief Economist Eugenio J. Alemán, May 16, 2025

But whether using a rule of thumb or a more precise measurement, financial plans and projections are done for real people dealing with real life situations. And, much to the chagrin of economists and analysts, humans live in the real world where things can and often do change rapidly.

For example, there are no rules of thumb that tell you how to feel during a market downturn or provide you the discipline to stick with a long-term plan. No rules can predict a war in Ukraine or 145 per cent tariffs on Chinese imports to the United States. And there is no rule to provide advice or guidance when investors experience a change in their personal circumstances – losing a job, death of a spouse, starting a new job, selling a family vacation property, or getting married.

When reality changes, you don’t want to rely on an estimate or guess. You want to be confident that the advice is grounded in something more than “I think my thumb is about an inch wide.” We take pride in offering this level of service to each of our clients. We have thumbs but do not rely on rules of thumb when we customize an investment solution for our clients.

If something is on your mind, if you have questions, or if you are looking for a second opinion, we are here to help; just give us a call.

Looking Back

Canada’s main stock index, the S&P/TSX composite index (TSX), continued its advance last week and ended up 2.4 per cent. According to Ryan Bushell, CEO and portfolio manager with Newhaven Asset Management in Toronto, there appears to be a growing trend of diversifying out of the U.S. dollar, and by extension, the S&P 500, into harder assets such as infrastructure and commodities. This has clearly benefited the TSX even though energy and financials have both had challenges.

*Source: FactSet, S&P 500 Index, S&P/TSX Composite Index, Edward Jones*

All three major U.S. indexes gained last week, after starting out with a steep rally on Monday, thanks to Washington and Beijing agreeing to a 90-day pause in their escalating trade war. It should be noted that this was days after the U.S. President and British Prime Minister announced a limited bilateral trade agreement. Some potential trade agreements will have a greater impact than others, it would seem. (2)

The agreement by the U.S. and China to a substantial de-escalation of trade tensions led to strong gains by U.S. stocks last week. Other trade-related headlines, including news of an agreement that will allow Saudi Arabia to purchase large amounts of advanced artificial intelligence chips from U.S. companies, also helped fuel the positive move in stocks during last week and resulted in most indexes being back above their April 2 levels by the end of last week.

Last Monday’s tariff-suspension-driven rally continued through Tuesday, supported by the Bureau of Labor Statistics’ (BLS) report of lower-than-expected U.S. consumer price inflation in April. According to the report, April’s consumer price index (CPI) rose 2.3 per cent year-over-year, slightly below consensus estimates for a 2.4 per cent increase and the slowest annual pace since early 2021. However, the Census Bureau reported last Thursday that retail sales grew just 0.1 per cent in April, down from March’s gain of 1.7 per cent. The report reflected a pullback in spending across several categories that surged in March, including sales at motor vehicle and auto parts dealers, sporting goods, and apparel, possibly due to consumers reducing their spending, following a rush to buy goods in March ahead of broad tariff increases. That said, expectations for inflation for this year jumped to 7.3 per cent, up from 6.5 per cent in April.

In the European Union (EU), the pan-European STOXX Europe 600 Index ended 2.10 per cent higher, as investor sentiment improved after the de-escalation in the trade war between the U.S. and China. Other major European indices also rose. On top of this, industrial production in the euro area jumped in March, suggesting that the sector is emerging from a two-year recession. Also, the eurozone’s trade surplus swelled to a record 36.8 billion euro in March, fueled by a sharp rise in exports, particularly to the U.S. Employment in the EU rose by 0.3 per cent in the first quarter and up from 0.1 per cent in the last quarter of 2024.

Japan’s stock markets rose modestly last week amid ongoing trade negotiations between Japan and the U.S., where Japan continues to push for a review of all tariff measures imposed by the U.S and a reassessment of duties on autos and other goods. However, Japan’s economy contracted by more than expected in the first quarter of 2025 - gross domestic product (GDP) fell an annualized 0.7 per cent quarter on quarter. This has been blamed on sluggish private consumption, as well as concerns about the potential impacts of U.S. trade tensions and weak demand from Japan’s trading partners, notably China.

China’s stock markets rose last week on news of the de-escalation in U.S. trade tensions. Expectations that a spiraling trade war with the U.S. would spur the Chinese government to ramp up measures to bolster the economy have supported Chinese stocks in recent weeks. Also, earlier this month, the People’s Bank of China unexpectedly cut its reserve requirement ratio—the amount of cash that banks must keep in reserve—by half a percentage point and trimmed the seven-day reverse repurchase rate by 10 basis points to 1.4 per cent. However, hopes for further government support have been tempered in the near term, as the U.S. and China work toward a broader agreement over the next three months. (3)

The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.