Every 60 years, the Chinese lunar calendar combines the two symbols of wood (fostering growth) and the snake (representing wisdom and the ability to shed its skin for progress). The wood snake is a powerful combination that encourages introspection and gradual growth, according to Architectural Digest India. What does this have to do with your finances?
As we look ahead to 2025, I anticipate growth but, much like the wood snake, at a moderate pace. Forecasts for GDP growth in 2025 vary. The St. Louis Fed survey shows a consensus average of 2.1% real GDP growth in 2025. Growth, yes, but a little off from the growth rate of 2.8% in the third quarter of 2024. The fourth-quarter rate is expected by the end of January.
The economy is not the stock market. The stock market is forward-looking, anticipating growth or no growth. Possible inflection points in 2025 could come via two ways — President Donald Trump’s policies and the Federal Reserve. Will Trump give us what the stock market likes — deregulation, tax cuts, a Ukraine peace deal or not so much — policy volatility, tariffs, labor market restrictions? Or will the Federal Reserve continue to lower interest rates, or maybe — hate to say it, but it’s possible — raise rates again?
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Given the uncertainty and the fact that we are coming off of the S&P 500’s first back-to-back 20%+ annual returns since the late 1990s, stock investors could see volatility in 2025. But what does that mean for your portfolio? What should you do? Like the wood snake, now is a good time for introspection.
Step No. 1: Review your equity exposure
After two years of double-digit growth in the S&P 500 index, is your stock allocation still appropriate? Are you tilted more to equities than you should be? Reviewing your asset allocation — the mix of stocks, bonds, real estate and other investments — is important to do now, before it might be too late.
Step No. 2: Review your equity style
Many investors have narrowed their equity exposure to a few large companies. They are chasing returns in the handful of stocks that did really well in 2024. They may have little exposure to smaller companies or international stocks. That could be a problem in 2025 if other parts of the market rally. Ensure your portfolio is balanced and not overly exposed to one style of investing.
Step No. 3: Diversify beyond stocks and bonds
There’s a great investment chart I review every year — the Mercer periodic table of investments. The chart ranks the best-performing asset class each year from best to worst. It is a great visual for showing the importance of diversification. What you’ll notice is that no investment asset class stays the best-performing asset class. Commodities were one of the worst investments in 2020, but rallied in 2021 and 2022 to be in the top three. Every dog has its day. Stay diversified.
Step No. 4: Be patient
Long-term stock investors know market volatility — the ups and downs of the market — is part of the game. For putting up with the volatility, you should expect higher returns over time. If you don’t embrace volatility, or some level of risk, and choose instead to stay in cash or CDs, you should expect lower returns over time. Like the wood snake, think gradual growth, be careful about trying to time the market and be patient when investing in the stock market.
Step No. 5: Control what you can control
Investors needing returns from their stock portfolio are on shaky ground. Once the market dips, they might be more willing to sell. That’s not good. Instead, try saving more. Build the cash reserve fund. Pay down debt. Dollar-cost average into a diversified portfolio. Review if you need life or disability insurance to prevent catastrophic income loss. Minimize portfolio taxes like capital gains distributions. Save in the right accounts (401(k) with an employer match and health savings accounts (HSAs), for example). Doing all the little things adds up over time.
Parting thoughts
Like every year, we never know what the next 12 months will bring. However, if the wood snake is any guide, this is the year we need to be patient and have wisdom, and over time, growth and personal transformation are possible. Now that’s something to look forward to this year. Good luck in 2025.
To schedule a complimentary investment portfolio review with the author, visit Portfolio Review Call.
Michael Aloi, CFP, is an independent financial adviser with 25 years of experience in helping clients achieve their financial goals. He works with clients throughout the United States. For more information, please visit www.michaelaloi.com.
Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666.
This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results.
The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Links to third-party websites are provided for your convenience and informational purposes only. Summit is not responsible for the information contained on third-party websites. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.
Related Content
- Market Volatility: Creating an Adaptable Retirement Plan
- One Retiree's Story of How She Built Her Retirement Nest Egg
- Five Ways to Minimize a Higher Capital Gains Tax Rate
- Four Tips to Help You Conquer the Retirement Mountain
- Whole Life Insurance: A Multipurpose Financial Planning Tool
-
The Most Tax-Friendly State for Retirement in 2025: Here It IsRetirement Tax How do you retire ‘tax-free’? This state doesn’t tax retirement income, has a low median property tax bill, and even offers savings on gas. Are you ready for a move?
-
Plan for Higher Health Care Costs in 2026: Projected Medicare Part B and Part D PremiumsIn 2026, Medicare participants will pay more for their health care. Part B costs are expected to rise more than 10%. Here's what you can do.
-
Avoid Medicare's 'Shadow Tax' With This Financial Expert's IRMAA-Busting TipsYou're cruising along in retirement, and then bam: Your Medicare premiums soar because your income crossed the limit. Take a breath. There could be a solution.
-
Grilling Season and ETFs: There's More Than One Way to Cook Up a PortfolioExchange-traded funds come in a multitude of 'flavors' these days, from passive to active to factor-based. Their flexibility is what makes them so delicious.
-
You Don't Want It, But You Should Plan for It Anyway: An Expert Guide to Long-Term CarePlanning for long-term care is crucial to protect your independence, family and financial stability against unexpected health events and rising care costs not covered by standard insurance.
-
Japan Tariffs: 5 Things That Might Get More Expensive for YouPresident Donald Trump's trade agreement with Japan features a 15% reciprocal tariff for all imported products, which could impact the prices of these items when you go shopping.
-
Five Questions to Help Ensure a Happy, Secure RetirementYou need to drill down to what you really want out of retirement. Then you can get down to the business of crafting a financial plan to make it happen.
-
I'm a Financial Adviser: This Is How You Can Save for Big Goals Even if You Feel Like You're Barely Getting ByLearning good financial habits — building an emergency fund, paying down debt, saving consistently — gives you flexibility, options and a path to security.
-
How to Buy an Annuity Online (Without Regret)You should never be rushed into buying an annuity. But now that they can be sold quickly and easily online, you need to be more alert than ever to pushy salesmanship. Here are four signs you're working online with a professional.
-
Dow Dives 542 Points on Soft Jobs Data: Stock Market TodayThe last day of a busy week ends with the first greater-than-1% move in either direction in more than a month.
