What Investors Can Be Grateful For This Holiday Season
As the holidays approach, it’s a good time to think about what we’re grateful for in our money and investments. Looking back at the past year can help us see things more clearly as we move forward.
This year, investments have done well. The S&P 500 stock index is up more than 15% including dividends. Bonds have gained about 7%. Even international stocks have done better than U.S. stocks for the first time in years. If you own a mix of different investments (called a diversified portfolio), you’ve likely benefited from these gains. Here’s what to keep in mind as we head into next year.
Markets have been rising for three years
Markets have done well this year, even with some ups and downs along the way. This “bull market” (a period when markets generally rise) started in October 2022. We’re now in the fourth year of gains.
History shows that bull markets usually last much longer than “bear markets” (when prices fall). They often continue for five to ten years or more. While we can’t predict what will happen next, staying invested for the long term has worked well in the past. This year’s bond returns are especially good news after bonds struggled when interest rates were rising. Now that the Federal Reserve (the Fed) has started lowering rates, bond prices have gone back up. This shows why owning both stocks and bonds matters.
An important lesson: trying to predict short-term market moves is very hard and often doesn’t work. This was clear in April when markets fell sharply due to tariff news. Markets quickly recovered and hit new highs. People who stayed invested were rewarded. Those who sold may have missed out on gains.
Inflation is better and interest rates are coming down
Having a mix of investments helps manage risk
Inflation (rising prices) has improved, though not as fast as many hoped. Prices are up about 3% from last year. While this is still challenging, it’s much more stable than before. Fears of rapidly rising inflation have eased.
This has let the Fed start cutting interest rates. Lower rates help both stocks and bonds. They make it cheaper for businesses and people to borrow money. They also make existing bonds more valuable. So while inflation and rates still matter, the worst concerns seem to be behind us.
It’s important to have the right mix of investments for your situation. Next year will bring new uncertainties, just like every year does. When that happens, people will worry about recessions and falling markets. Instead of reacting to every piece of news, focus on holding a portfolio that works in different market conditions.
After three years of rising markets, managing risk is especially important. Stock prices are higher than average compared to company earnings. This doesn’t mean markets can’t keep going up. But it does suggest future gains might be smaller. That’s why it’s smart to own different types of investments, not just the most popular ones.
There will continue to be questions about artificial intelligence, tariffs, politics, and other big issues. Recent experience shows that overreacting to these events can hurt your financial plans. The best approach is to stay focused on your long-term goals. As your Southwest Florida financial advisor, I enjoy discussing those goals with you and creating a strategy to move towards them.
The bottom line? The holidays are a great time to be grateful and review your investments. A well-built portfolio includes different types of investments that work together to help you pursue your financial goals. This approach will help you handle whatever comes next year.
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You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Estate planning rules and regulations are subject to change at any time.
All investments have the potential for profit or loss. Different types of investments and strategies involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. Asset allocation, rebalancing, and diversification will not necessarily improve a client’s returns and cannot eliminate the risk of investment losses.
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