3 Ways to Navigate the Market in 2025
In 2024, US Stocks were up over 20% for the second year in a row. So, what can we expect as 2025 unfolds? It is hard to know for sure, so as always, we encourage you to think about your retirement investing over several years — or even decades, depending on your age and years until you plan to retire. The market has fluctuated historically, but over longer periods, it can help you build your savings despite volatility — especially if you are able to make regular, ongoing contributions.
The last time we saw consecutive 20-percent-plus return years was during the dot-com bubble, which deflated in 2001. This doesn’t mean that the market can’t power through in 2025, but company valuations appear stretched by several measures, based partly on the anticipated boosts in productivity and corporate earnings from breakthroughs in artificial intelligence (AI). Because the future is impossible to predict, it can be important to maintain perspective along with a well-diversified portfolio across major asset classes. This typically includes US Stocks, but also some International Stocks and US Bonds.1
So far the US economy continues to look uniquely strong compared to the rest of the major global economies as we begin 2025. Aside from certain industries, the US labor market remains generally healthy, inflation is back down around 3%, and there was a peaceful transfer of power between the Biden and Trump administrations. The Federal Reserve decided not to change rates during their January meeting after making rate cuts in the fall. The markets will be looking for clues about potential rate moves as the rest of 2025 unfolds.
In addition to the outlook for AI developments, the health of the US economy, and the interest rate environment, other developments that could impact the capital markets in 2025 include:
- International risks, including Russia’s war on Ukraine, Israel and Iran fighting through proxies in the Middle East, and sluggish growth in the Chinese economy and the CCP’s posture towards Taiwan
- The Trump administration’s immigration and tariff policies, regulatory rollbacks, budget and department cuts, and the extension of the 2017 Tax Cuts and Jobs Act
- Ongoing hyper-partisanship in Washington while managing the expanding US debt and deficit
As we highlighted last fall, there are several ways to help manage the next wave of volatility if and when it comes, but these approaches may help you navigate the market along your journey to retirement.
Reassess and rebalance: When it comes to investing you cannot avoid risk altogether, but you should be aware of how much you are taking on and keep an eye on rebalancing regularly to maintain your asset allocation.
Save smart: If possible, you can also build up adequate emergency and short-term savings ahead of when you may need them. Funds in a high-yield savings account2 or money market fund,3 both of which are currently earning 4% annually, can be a great choice.
Secure your accounts: One other form of risk you should not overlook as we start 2025 is your security profile. There are some simple steps you should be taking to reduce your exposure, like using a password manager to generate strong and unique passwords, along with using multi-factor authentication on all your personal and email accounts. You should also log in reasonably regularly to keep your account information up to date and to check on your investing progress.
Regardless of where the market heads in 2025, staying the course with saving and investing can help ensure your nest egg will grow in the long run.