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The uniqueness of what we’ve seen from the stock markets since the March, 2020 crash cannot be overstated.

We saw a 33.8-per-cent total return from the S&P/TSX Composite Index for the 12 months to May 31; and a 38.9-per-cent gain from the S&P 500 and 42.6-per-cent gain for the Nasdaq 100, in Canadian dollars. Asked what they saw from their investments going forward, 300 Canadian investors recently said they expected returns averaging 11.2 per cent above inflation over the long term.

Inflation clocked in at 3.6 per cent in May, which means investors are looking at average annual all-in portfolio returns of 14.8 per cent. A four-word comment on this outlook: Not going to happen.

The survey of investors was conducted on behalf of an international financial firm called Natixis Investment Managers. All had at least $100,000 in household investable assets, which suggests the potential for some familiarity with investing. The reason why these investors are so optimistic about the future comes down to a phenomenon known as recency bias. In assessing future returns, investors are looking to the recent past.

Natixis says financial professionals regard 5.1 per cent on top of inflation as a realistic return, which seems somewhat optimistic as well. You might want to be more conservative in your own planning, based on the idea that the recovery from the pandemic has in large part already been priced into stocks. We could see markedly more subdued returns ahead and, at some point, a correction.

According to Natixis, Canadian investors have a track record of unrealistic expectations for market returns. However, this exuberance has become more pronounced lately. If anything, now is the time for caution. Focus on quality, even if speculative plays are still working. Focus on diversification, even if bonds are out of favour. Focus on long-term results, even if you can’t take your eyes off your spectacular recent results.

Canadian stocks produced an average total return of 7.3 per cent annually over the past 20 years, including the past year and its surge in share prices. The mini-lesson in this number is that returns never stay as good as they are in boom times and neither do they stay as bad as they look in a crash.

-- Rob Carrick, personal finance columnist

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Stocks to ponder

Firm Capital Property Trust (FCD-UN-X) This trust has an attractive yield of over 7 per cent, and its unit price has pulled back following an equity offering. With a unanimous buy recommendation from three analysts, is this the right time to buy this owner of commercial and multi-residential properties? Jennifer Dowty has the facts that you need to know.

Air Canada (AC-T) As North America eases up on many of its pandemic restrictions, airline stocks have been rebounding as consumers plan getaways farther away than their neighbourhood grocery stores. But investors should keep a close eye on business travel, which looks a lot less predictable than leisure travel right now. David Berman has some thoughts on whether Canada’s biggest airline is a stock you should own amid the COVID-19 recovery.

The Rundown

Rosenberg’s top investment ideas for the years that lie ahead

Secular trends play a major role in David Rosenberg’s longer-term investment themes. Aging demographics and a return to slower economic growth, as well as the rise of Asia, have their thumbprints on many of the recommendations he highlights here.

Short sales on the TSX: What bearish investors are betting against

Thanks to COVID-19 vaccinations and improving business conditions, market participants seem to be feeling less of a need to hedge against a TSX downturn. Larry MacDonald takes a look at the latest trends in short positions this week, and as a bonus, reports his findings on whether heavily shorted stocks in Canada tend to outperform, or underperform over time.

U.S. infrastructure spending promises boost for industry

Plans to pump money into rebuilding the United States’ roads, bridges and other infrastructure could give companies that make machinery and materials a solid foundation for growth. Caterpillar, with its heavy machinery, and construction materials company Vulcan Materials could see years of additional business as roads and bridges are rebuilt and buildings are modernized. The benefits would be even broader, impacting Sherwin-Williams, United Rentals and others that make, sell, or rent anything used for construction. Damian J. Troise of The Associated Press tells us more about why these could be good stock plays ahead of the U.S. spending spree.

Fed’s mixed messages on inflation unsettle investors

Investors have been struggling to interpret signals from the Federal Reserve about how hot it is willing to let inflation run before it begins unwinding pandemic-era monetary stimulus. Measures of markets’ U.S. inflation expectations hit multi-year highs in mid-May, but fell after comments from some Fed speakers and minutes from the committee’s April meeting sounded more hawkish. The choppiness suggests investors are struggling to make sense of the sometimes conflicting signals from Fed officials, who are facing their first inflation test under a new flexible average inflation framework adopted in 2020. Kate Duguid of Reuters reports.

Also see: Near-term global bond market correction likely: strategists

Others (for subscribers)

The highest-yielding stocks on the TSX, plus risk data

Number Cruncher: Why these ‘gold’-rated funds might appeal to DIY investors

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Globe Advisor

How investors can take a bite out of the resurgent restaurant industry

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Ask Globe Investor

Question: I bought shares of Royal Bank of Canada at $96 last fall and they’re up more than 30 per cent since then. Is now a good time to sell and lock in my profit?

Answer: Let me ask you a question: If you owned a highly successful small business whose sales and earnings were growing year after year, and you knew the value of the business was also rising, would you sell it to “lock in your profit”?

I doubt it. Knowing what a great business it is, you would probably want to maintain ownership because the company will likely continue to appreciate in value and – thanks to its rising sales and profits – allow you to draw a growing salary.

Well, guess what: You own a highly successful business in Royal Bank. The difference is that it is a very large business, and you own only a small piece of it. But the principle is the same. You’re even getting paid a “salary” in the form of a quarterly dividend.

What’s more, you’ll probably be getting a “raise” soon. With Canadian banks carrying record amounts of capital and posting strong results, they are expected to raise their dividends – perhaps substantially – once the banking regulator lifts a ban on increases that’s been in place since the start of the pandemic.

As for the share price, nobody knows if it will rise, fall or go sideways in the short run. Many investors think the way to make money on stocks is to time the short-term ups and downs, but the true secret to building wealth is just the opposite: You must learn to ride the waves and accept them as a perfectly normal part of investing.

So, instead of trying to avoid a potential pullback by selling – which will cost you a commission and may trigger capital gains tax – just roll with it. I would wager that, a few years from now, Royal Bank’s stock price and dividend will both be substantially higher than they are today. If you “lock in” your profit now, you’ll “lock out” any future gains from owning this highly profitable and growing business.

--John Heinzl

What’s up in the days ahead

Central banks face a tricky path to providing useful digital currencies while fending off cryptocurrencies and avoiding a clash with commercial banks. Ian McGugan this weekend will take a look at the digital-currency arms race.

The missing piece in the Fed puzzle: World market themes for the week ahead

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

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Compiled by Globe Investor Staff

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