As we embark on a new year, what I am thinking most about is “I DIDN’T COME THIS FAR TO ONLY COME THIS FAR.” With the investment landscape proving to be rapidly evolving, 2025 is presenting opportunities but mixed with volatility and challenges. We are facing future policy uncertainty, and it is creating persistent anxiety among investors. So, how do we continue to grow our investment dollars TODAY and protect our wealth at the same time?
These last two years in a row, the infamous S&P 500 has provided returns above 20%. Since 1950, the S&P 500 has gained 20%+ returns two years in a row 8 different times. But what happened in the third year after each 2-year run? 6 out of 8 of those times, the third year saw positive gains, with an overall average of 12%-13% return. As a financial advisor, I like these odds. But as we know, history does not always repeat itself, but it often rhymes.
The fundamental reasons behind the bullish view on the stock market this year include an overall solid economy and rising corporate profits. But we are also preparing for the economy to slow down, an additional 10% tariff on imported goods from China, and just one expected cut to the Fed Funds rate this year, according to Jerome Powell, Fed President.
With all that being said, bull markets last longer than you think with an average age of 5-and-a-half years. We are only two years into this bull market, which suggests there is still runway ahead for the stock market, even after the last two years experienced a stellar bull rally.
So, what do we do now with all this mixed data?
Avoid Emotional Extremes
Bull markets climb a “Wall of Worry” every higher step of the way, even as prices keep on rising. We get a constant barrage of fears to choose from. But if you act on them, you are falling victim to “short-termism” and that’s usually a mistake. Stay disciplined to your timeline, your plan, and your course that you outline with your trusted financial advisor. They will help you discern the “signal from the noise” and be able to warn you of better, possible times to make a change in your portfolio versus acting on every emotional headline.
AI Could Boost Stocks for Years
Because AI can take on a multitude of human tasks, this market can be unknowably massive. The race for AI is not just about its tech applications like ChatGPT and driverless cars. AI also creates opportunities in unexpected places. The build-out of data centers create manufacturing and construction jobs. They also require vast physical resources, such as copper, and a lot of electricity. AI stretches over multiple sectors.
Markets Have Remained Resilient
In the face of turmoil and uncertainty, markets have remained resilient over time with investors typically rewarded for staying focused on their long-term investment goals. There are always a dozen reasons why it makes sense to wait. A new president, strife in Russia/Ukraine, excessive government regulation, Congress that feels more a part of the problem than the solution. But just looking at the market since 2020, the infamous Covid Year, the S&P 500 Index has risen more than 100% since that volatile time.
Sector Diversification
From the American heartland to the arid desert, an industrial renaissance is underway. Industrial projects are popping up across the US, boosting local economies and creating opportunities for select companies. Drug discovery is creating a golden age for health care, too. Looking past the headlines of weight loss drugs, life expectancy is up, mortality rates from cancer and cardiovascular disease are down, and pharmaceutical companies have over two hundred new drugs in their pipelines.
Asset Allocation and Asset Location
I think most of us have heard the term “asset allocation,” which simply refers to the way your assets are portioned out in your portfolio. But “asset location” is the master’s degree version of this. Asset location means placing your assets in taxable or tax-advantaged accounts in the manner that will create the best tax treatment. Asset location helps lower your tax liability.
No matter what you are considering in 2025, make sure it involves a Financial Advisor you trust, who can help you get to where you want to go. In my practice, we specialize in enhancing happiness in retirement. We help you design a personalized Lifestyle Wealth Plan and customize a Retire in Style Investment Strategy. Additionally, our “Did You Know” series of workshops and events serve as valuable resources, deepening your understanding of money, enabling you to build a resilient and adaptive financial strategy, and providing a holistic view of financial health. We reverse engineer your dream!
Please contact me to schedule your complimentary consultation at 949-781-2100.
Wishing you all the BEST!
SOURCES:
The stock market’s back-to-back gain of more than 20% may be setting the stage for another rally in 2025
One More Brick in the Wall of Worry | Stansberry Research
5 keys to investing in 2025 report | Capital Group
Economic Developments – February 2025 | Fannie Mae
Study Shows That S&P 500 Has 80% Chance Of Being Down Over Next 5 Years
