Stocks held their ground.
Bonds didn't.

After every quarter, most investors feel the same pull: move money into whatever just did well.

Q3 shows what that would have cost. Buy Korea after its 80% gain in Q2, and you lost about 8% this quarter. Sell Norway after its 12% loss, and you missed a 12% gain.

This quarter has its own version. Stocks rose a little and bonds fell about 3%. If that has you wondering whether bonds are still worth owning, read on.

Markets, in one table

A quick primer first. A stock is a small piece of ownership in a company. When the company's profits grow, the stock tends to rise, but its price can swing a lot along the way.

A bond is a loan to a government or a company. It pays you interest and returns your money at the end, as long as the borrower pays. That's why bond prices usually move much less than stocks.

Broad market index returns in Canadian dollars, as of September 30, 2026, shown for context. Canada (S&P/TSX Composite), US (Russell 3000, net of tax), developed ex Canada and US (MSCI EAFE IMI), emerging markets (MSCI Emerging Markets IMI), global REITs (S&P Global REIT), Canadian bonds (Bloomberg Canadian Aggregate), global bonds (Bloomberg Global Aggregate, hedged to CAD). Indices are not available for direct investment and do not reflect the costs of managing an actual portfolio. Past performance is no guarantee of future results. Source: Dimensional Fund Advisors Canada ULC, Equity Market Overviews, October 2, 2026.

Stocks barely moved. Canada, the US and international markets each gained 1% to 2%. Emerging markets were flat. Real estate stocks (REITs) fell 5.96%.

Bonds took the bigger hit, down about 3% in Canada and abroad. Over twelve months, though, stocks are still up 17% to 30% depending on the region.

Stocks edged up. Bonds and REITs fell.

Last quarter's leaderboard, three months later

Q2's leaders and laggards, one quarter later

All five of Q2's worst markets went up in Q3. Four of the five best went down. Norway, the best developed market in Q1, fell in Q2 and was fourth-best in the world in Q3.

Value swept the board again

All country market returns in Canadian dollars, Q3 2026, computed by Dimensional from MSCI All Country World IMI Index security weights. Value and growth are based on price-to-book ratios; profitability is operating income before depreciation and amortization minus interest expense, scaled by book. REITs and utilities are excluded. Past performance is no guarantee of future results. Source: Dimensional Fund Advisors Canada ULC, Equity Market Overviews, October 2, 2026.

Value stocks are companies that look cheap compared with what they own. Growth stocks are priced higher because investors expect fast growth. In Q3, value beat growth in every region, in both large and small companies. That flips Q2, when growth led, and repeats Q1.

Value beat growth in every region

Over the past year in Canada, the gap was huge. Large value companies returned 37.7%. Large growth companies returned 1.5%.

Why lean toward value, smaller and more profitable companies? Because of the price you pay. Paying less for the same future profits means a higher expected return. Smaller companies are priced lower because they're riskier. Profitable companies earn more for each dollar you pay. Researchers have found these patterns across decades and dozens of countries.

The extra return shows up unevenly, sometimes lagging for years. So our recommended portfolios hold a tilt, not a bet. They still own the whole market, with a bit more weight where expected returns are higher.

Our model portfolios

Series F, net of fund management fees and expenses, before advisory fees. Returns for periods longer than one year are annualized compound returns. Inception dates: DFA607 September 7, 2011; DFA698 September 10, 2012; DFA605 September 7, 2011; DFA603 September 7, 2011. Source: Dimensional Fund Advisors Canada ULC, fund performance as of September 30, 2026. Past performance is no guarantee of future results.

Volatility is the price you pay for higher returns. If you can't stay invested through the downside, you won't be there to capture the upside.

Highest and lowest returns over any rolling 12-month period from November 2014 to September 2026, Series F, net of fund management fees and expenses, before advisory fees. Source: Dimensional Fund Advisors Canada ULC, Returns Program, as of September 30, 2026. Past performance is no guarantee of future results.

What bonds are for

First, why they fell. A bond's price moves the opposite way to interest rates. When rates rise, older bonds paying less are worth less, so their price drops. That happened in Q3.

Bonds aren't there to beat stocks. They have three jobs.

They soften big drops. Since 2014, the worst 12 months for the 100% equity portfolio was a drop of 18.76%. For the 40/60, it was 9.91%, about half as much. That makes it easier to stay invested instead of selling at the bottom.

They hold money you'll need soon. If you're drawing retirement income or taking money out of your corporation, bonds and cash mean you don't have to sell stocks when prices are down.

They give you something to rebalance from. When stocks drop, you sell some bonds to buy stocks at lower prices.

This quarter, stocks didn't fall, so bonds had nothing to cushion. They were the part that lost money. That happens. Sometimes both fall at once: the 40/60's worst stretch came in 2021 and 2022, when stocks and bonds dropped together. The right amount of bonds still comes from your plan and timeline, not last quarter's returns. I explain more in this earlier piece.

Why an evidence-based approach matters

So, should you move toward what's working? This year the lead changed every quarter: value, then growth, then value. Norway, then Korea, then Colombia. Chasing last quarter's winner would have been wrong three times in a row.

An evidence-based approach asks a different question: what has worked across decades of data, not what will happen next? The answers are simple. Own the whole market so you hold the winners wherever they show up. Keep costs low, because they come straight out of your return. Lean toward the value, size and profitability patterns that research supports.

Then stick with it. Each portfolio has a fixed target mix, such as 80/20 or 60/40 stocks to bonds. When markets push it off that mix, it's rebalanced back to target on a set system, not on gut feel or headlines.