Reflecting on 2025: Finding Calm in the Market’s "New Highs"
Think of all the hard work you did planning your retirement income as building a strong and comfortable financial house. You’ve designed it to provide shelter and support for a long time, focusing on ensuring the income it generates can last for your entire lifetime, even in the face of challenges like inflation and market shifts.
Looking back at 2025, it’s fair to say there were plenty of "storms" passing by. From the tariff announcements in April to the record-setting government shutdown in October, the headlines certainly tried to keep us on our toes. Yet, if you looked at your statement at the end of the year, you likely saw something very different from what the news was shouting: a market that reached 39 new all-time highs and an S&P 500 that gained nearly 18%.
The "Known Unknowns"
A concept I often refer to is the distinction between "known unknowns" and "unknown unknowns." For investors, this is a helpful way to look at the world. The "known" uncertainties—like the passage of the One Big Beautiful Bill Act or the Fed eventually cutting interest rates—are things we can anticipate.
Because we could see these things coming, the market was able to digest the news and move forward. It’s a great reminder that while headlines cause noise, the foundation of your financial house is built to withstand more than just a single news cycle. Even when AI stocks took a hit in January or the unemployment rate ticked up late in the year, the broader economy showed remarkable resilience.
Three Themes That Defined the Year
As we look at the numbers, three big themes stand out that I want you to keep in mind:
The Tech Influence: Artificial intelligence dominated the narrative. The "Magnificent 7" stocks (like Nvidia, Apple, and Microsoft) now represent about one-third of the S&P 500. While their growth has been a massive driver of returns, it also creates a concentration that we must manage carefully in your personal plan.
The Bond Rebound: After some lean years, bonds had their best performance since 2020. This is a welcome relief for retirees who rely on the fixed-income portion of their portfolio to act as a "stabilizer" during rocky times.
The Value of Diversification: While U.S. stocks were strong, international markets actually outperformed them, and gold prices rallied over 60%. It’s a classic example of why we don’t "bet" on just one asset class; we want a diversified team of investments that can perform in different conditions.
Staying Disciplined Through the Dips
It’s easy to feel great when the market is at an all-time high, but we must remember that pullbacks are a natural part of the journey. Even in a winning year, we saw moments of significant volatility, particularly in the spring and autumn.
The lesson 2025 reinforced is that the best way to weather uncertainty is to remain disciplined and focused on your long-term goals. We don’t build a "financial moat" just for the sunny days; we build it so that when the "cockroaches" appear, your foundation remains unshaken.
Looking Ahead to 2026
As we move into the new year, my advice remains the same: focus on what you can control. We can't control the next policy change in Washington or the next shift in the global economy, but we can control your asset allocation and your income strategy.
If you’re feeling a bit of "headline fatigue" or wondering if your current plan is ready for whatever 2026 has in store, I’m here to help. We’ve built a strong house together; now our job is to keep it protected so you can enjoy the peace of mind you’ve earned.
