GuShiio.com 2025 is full of variables, but if you strategy is right, you can also pay off.
Written by Suzanne Woolley, Bloomberg Businessweek
Compiled by: Luffy, Foresight News
This year is full of variables. The artificial intelligence narrative that has driven the U.S. stock market is being questioned; there is little certainty on how the second Trump administration will affect the financial situation of ordinary Americans, and whether we will see inflation rise again, putting pressure on stocks and bonds. To help you find your way through this uncertain period, we asked investment experts about some of the major issues investors are facing this year. Although this year is full of risks, if the right strategy is used, it may also pay off.
1. What is the possibility that the S & P 500 index will fall sharply this year? How should I prepare?
Michael Cembalest, chairman of markets and investment strategy at JPMorgan Asset Management, said the S & P 500 has risen more than 20% each year over the past two years, which has only happened 10 times since 1871. Cembalest expects stocks to move higher at the end of the year, but also said a decline of as much as 15% could occur during the period, which he noted is not uncommon. In 60 of the past 100 years, the S & P 500 has fallen by 10% or more.
Given the potential volatility of the market, a better question is: When do you need the money? Every decline is followed by a new high, so if you can cash in a few years later, you won’t have a problem. Also, take a closer look at your asset allocation. Owning the S & P 500 is not enough, because the top 10 stocks (mostly technology stocks) account for about two-fifths of the index’s market value, up from about a quarter in 2000.
Ben Inker, co-head of asset allocation at GMO LLC, said one diversified investment approach is to buy exchange-traded funds (ETFs) that track weighted versions such as the index, with each company accounting for about 0.2% of the value. “In the long run, it’s a good way to avoid getting too caught up in any current investment boom,” he said.
2. Does the traditional 60/40 investment portfolio still make sense?
Financial planners have long recommended a 60% equity and 40% bond portfolio, which over the past few decades has provided good returns and is far less risky than holding stocks alone. However, the logic behind this combination (that bonds rise when stocks fall, and vice versa) will completely fail in 2022. As inflation soared and the Federal Reserve aggressively raised interest rates, both stocks and bonds suffered. In recent times, U.S. stocks and bonds have often even fluctuated in sync.
A growing number of investment managers are recommending allocating part of the 60/40 portfolio to so-called alternative assets, private securities that are out of sync with public market assets. Adding these assets may introduce new risks, but it may also improve long-term returns. West Sinead Colton Grant, chief investment officer at Bank of New York Mellon Wealth Management, said the company’s listing cycle is getting late, which means public market investors are missing out on the higher returns the company has achieved in its early stages. “If you don’t have access to private equity or venture capital, you miss out on the opportunity.” She believes that to replicate the performance of the 60/40 portfolio in the late 1990s, private equity assets should account for about a quarter of the portfolio.
Not everyone agrees with this view. Jason Kephart, director of multi-asset ratings at Morningstar, said adding private assets to the 60/40 portfolio “adds complexity and expense, and raises questions about the valuation approach.” He said the advantage of the 60/40 strategy lies in its simplicity, making it “easier for investors to understand and stick to the combination over the long term.”
3. If I were a risk averse, would U.S. Treasuries be worth investing in? Will bond guardians return?
Bond guardians are large investors who demand higher yields on government bonds to express their dissatisfaction with excessive government spending. Although details of the new administration’s spending plans are unclear, there are concerns that the U.S. budget deficit will deteriorate in the next few years, which could mean higher Treasury yields are on the horizon.
The current yield on the 10-year Treasury note is about 4.6%, close to an 18-year high. So should investors seize this opportunity? Leslie Falconio, head of taxable fixed income strategy at UBS Global Wealth Management, said that until recently, the company tended to lock in yields on five-year Treasuries. But she believes buying is a good buying opportunity when the 10-year bond yield approaches 4.8% to 5%, given that UBS expects economic growth to remain above trend but slow and inflation will fall. As for the 30-year Treasury note, she said: “Given the current volatility and policy uncertainty, we believe that at this level of yield, it is unwise to extend the investment period to 30 years, and the risk is not proportional to the return.”
Of course, for people with high-yield savings accounts or one-year time deposits, a yield of 4.6% may not seem high because these products can also provide similar returns. However, the interest rate on a savings account can change at any time. As for time deposits, there is no guarantee that you will get the same interest rate when it matures and is renewed in a year.
4. How to protect my assets from rising prices?
President Trump has promised to “beat inflation,” but at the same time he is pushing for higher tariffs and tax cuts that could fuel inflation. Amy Arnott, portfolio strategist at Morningstar, said that for investors in their 20s and 30s, rising prices may not be a major concern because wages should keep up with price increases over time and stock values generally grow faster than inflation. Arnott believes that “in the long run, stocks are one of the best hedging tools against inflation.”
People hoping to retire within the next decade could consider specialized inflation hedging tools, such as commodities. Arnott said diversified commodity funds could include oil, natural gas, copper, gold, silver, wheat and soybeans. Few such funds have performed well recently, so if you choose one, Arnott recommends comparing risk-adjusted returns on such investments rather than focusing on absolute performance.
For retirees or people who plan to retire soon (who cannot offset inflation with a raise), Arnott recommends buying U.S. Treasury inflation-protected securities (TIPS) linked to the consumer price index. She recommends buying 5-and 10-year TIPS rather than 30-year TIPS because the latter is too risky for people who don’t plan to hold until expiration.
5. Should I add cryptocurrency to my portfolio?
With a president who launched Memecoin taking office and Treasury Secretary Scott Bessent revealing (and selling) his holdings of cryptocurrency funds, cryptocurrencies seem to be becoming increasingly mainstream. Investors can now buy cryptocurrency ETFs, and billions of dollars have poured into the year-old iShares Bitcoin Trust (IBIT), helping drive bitcoin prices up nearly 60% in the six weeks after Election Day.
However, the long-term prospects for cryptocurrencies remain highly uncertain; for example, Bitcoin has recently fallen back. As a result, some advisers say investors who insist on adding cryptocurrencies should keep their positions below 5% of their portfolio; if they are approaching retirement age, this ratio should be lower. Matt Maley, chief market strategist at Miller Tabak + Co., said that the proportion of young people investing in cryptocurrencies can be slightly higher, but only if they balance the risks by investing in “stable and reliable companies with good cash flow.” “You don’t want to invest 10% in Bitcoin and 90% in technology stocks.”
6. Has the artificial intelligence bubble burst?
The two-year bull market in artificial intelligence stocks was hit hard in January when a chatbot developed by startup DeepSeek forced investors to rethink some basic assumptions. DeepSeek said it was unable to obtain the most advanced semiconductors, so it quickly developed a model using lower-cost chips that, by some measures, seemed to compete with models from U.S. AI leaders. On January 27, the share price of Nvidia, which dominates advanced AI chips, plunged 17%, and its market value evaporated US$589 billion, setting the largest single-day drop in U.S. stock market history.
The possibility that artificial intelligence does not require expensive chips has raised questions about the valuation of Nvidia and the U.S. AI giant. Analysts are taking a closer look at DeepSeek’s model to try to verify its claims and determine whether the U.S. AI boom has peaked. What is certain is that China is making progress in this technology faster than many people imagine. Some investment managers see a ray of hope in DeepSeek because if more companies and consumers can afford the technology, artificial intelligence could have a greater impact. However, high valuations for leading technology stocks have led some portfolio managers to be cautious about investing in new money, preferring to undervalued areas of the U.S. market, such as health care and consumer products, or looking for better opportunities abroad.
7. How much impact will climate change have on my retirement plans?
Short answer: Very big. For the vast majority of retirees, home equity is the most valuable asset they hold, especially if they have lived there for decades and paid off their loans. Fully owning your own home can provide security for housing costs and avoid uncertainty about future rent increases. But as the number of extreme weather events increases and the cost of home insurance continues to rise, this logic seems to be losing its hold.
According to a study of more than 47 million households, average premiums for home insurance rose by 13% after adjustment for inflation between 2020 and 2023. But many major insurance companies no longer offer new home insurance policies for high-risk areas or only provide limited coverage, especially in sunny coastal communities where Americans typically spend their old years. For example, in 2021, approximately 13% of California’s voluntary home and fire insurance policies have not been renewed.
Clearly, more and more seniors feel they have no choice but to give up insurance due to a cash shortage. According to the Insurance Information Institute, the proportion of Americans without home insurance has more than doubled since 2019 to 12%. “This puts retirees in trouble,” said Daryl Fairweather, chief economist at real estate brokerage firm Redfin.”They either bear high and potentially rapidly rising monthly premiums or risk losing their homes.”
8. Will housing become more affordable in the short term?
The current 30-year fixed mortgage interest rate is about 7%, which has pushed many homebuyers out of the loan market. Existing homeowners with old loans at 3 or 4 percent have little interest in selling, because that means getting a new mortgage at today’s rates. Mark Zandi, chief economist at Moody’s Analytics, said mortgage rates are unlikely to fall back to near 6% anytime soon as the Trump administration is pursuing a series of policies that could lead to inflation.
Lower-priced homes (below $400,000) have a vacancy rate of about 1%, near historical lows. This indicates that prices will continue to remain high in both residential sales and rental markets. Don’t expect new homes to meet demand, as immigrants (those at risk of eviction under the Trump administration) account for nearly one-third of all construction workers, and about half of them have no legal status. “Housing will remain unaffordable this year and into the foreseeable future,” Zandi said.
Welcome to join the official social community of Shenchao TechFlow
Telegram subscription group: www.gushiio.com/TechFlowDaily
Official Twitter account: www.gushiio.com/TechFlowPost
Twitter英文账号：https://www.gushiio.com/DeFlow_Intern
