2025

Investment Outlook

January, 2025

14th Annual

Legend avers that an ambitious young man once found himself in the immediate presence of the late J. Pierpont Morgan. He ventured to inquire of Mr. Morgan’s opinion as to the future course of the stock market. The alleged reply has become a classic. 

“Young man, I believe the market is going to fluctuate.”

Of course, nobody complains when the markets fluctuate upward, as in 2024. And 2023. Or most of the time. Since 1928, when good data became available, the S&P 500 has averaged about 10 percent return per year. In other words (and numbers), $100 invested in the S&P then would have been worth $1,139,936.41 at the end of 2024.

But the market still fluctuates.

How, why, and what this means will be the subject of this, my 14th annual Investment Outlook.

2024 in Review

Here's the 2024 TL;DR for the markets: Another great year for domestic stocks, especially large-cap and growth stocks; another not so great year for international stocks and for bonds (full performance data here).

Let’s break that down a bit.

The S&P 500, up 25.02 percent in 2024 (including dividends) and well over 50 percent over the past two years, locked in its best two-year stretch since 1997-98 and recorded 57 record closing levels. The Dow Jones Industrial Average rose nearly 13 percent, its best year since 2021, while the tech-heavy Nasdaq Composite rose nearly 29 percent in 2024 and 85 percent over the past two years, its best two-year period since 2019-20. Generally speaking, strong corporate profits, easing monetary policy, and artificial intelligence investment and enthusiasm lifted the broader market last year. 

The why is pretty straightforward in retrospect. A resilient U.S. economy bolstered sales growth throughout 2024. Meanwhile, corporations widened their profit margins, which amplified earnings growth. Already-high stock market valuations got richer – but this can be at least partly explained by the prospects for further margin gains and expected earnings growth in 2025 and beyond.

Historically, double-digit market moves are the norm – in both directions. In 70 of the past 97 years (since 1928, when good data became available), the U.S. stock market has finished the year with double-digit gains (57 times) or double-digit losses (13 times).

The market fluctuates.

Within the S&P 500, the Communication Services, Information Technology, and Financial sectors led the way, all providing returns in excess of 30 percent for the year (with dividends). The Materials sector brought up the rear, and was the only sector in the red, losing 0.04 percent (with dividends). Healthcare, Real Estate, and Energy all badly trailed the broader market. Overall, the average U.S.-stock fund rose 17.4 percent in 2024, including a 1.2 percent gain in the fourth quarter, according to LSEG (formerly Refinitiv Lipper). 

More broadly, growth (S&P 500 Growth +36.07 percent) outperformed value (S&P 500 Value +12.29 percent), large (S&P 500 Top 50 +33.80 percent) outperformed small (S&P MidCap 400 +13.93 percent; S&P SmallCap 600 +8.70 percent), and domestic (S&P 500 +25.02 percent) outperformed foreign (S&P Developed Ex-U.S. BMI + 3.67 percent; S&P Emerging BMI +12.30 percent; S&P Frontier BMI +14.76 percent).

Indeed, American exceptionalism remained a thing in 2024, at least in the markets. Globally, investors overall continue to think American companies are the most profitable, the most innovative, and the fastest growing in the world. Accordingly, international-stock funds couldn’t keep up with their U.S. counterparts in 2024, on average, and have trailed domestic stocks (by a lot) for 16 years straight. The international category gained 4.8 percent, according to the LSEG data, held back by a 7.3 percent shellacking in the fourth quarter.

The so-called “Magnificent 7” stocks had another excellent year. The group – which includes Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta Platforms, and Tesla – averaged a gain of 65 percent in 2024. But that is significantly less than the 111 percent average last year, according to Dow Jones Market Data. At least market breadth was better, as the Magnificent 7 made up “just” 57 percent of the S&P 500’s market capitalization gain for the year, compared to 65 percent 2023. Even so, Nvidia alone made-up 21 percent of the S&P’s return, as the maker of artificial-intelligence chips saw its market value surge past $3 trillion.

Not every stock fared well, of course. Companies that have leaned into AI – think Nvidia (+171 percent) and Palantir Technologies (+340 percent) – did spectacularly, while other corners of the market struggled, including the chip maker Intel (-60 percent), consumer brands Nike (-30 percent) and Estée Lauder (-49 percent), and the drugstore chain Walgreens Boots Alliance (-64 percent).

The following stocks were the top five and worst five in terms of performance for the three major domestic indexes this year, according to Dow Jones Market Data.

Dow Jones Industrial Average. Best: Nvidia: +171%; Walmart: +72%; American Express: +58%; Goldman Sachs: +48%; and Amazon: +44%.

Worst: Boeing: -32%; Nike: -30%; Amgen: -10%; Merck: -9%; and Johnson & Johnson: -8%

S&P 500. Best: Palantir Technologies: +340%; Vistra: +256%; Nvidia: +171%; United Airlines: +135%; and Axon Enterprise: +130%.

Worst: Walgreens Boots Alliance: -64%; Intel -60%; Moderna: -58%; Celanese: -55%; and Estée Lauder: -49%.

Nasdaq 100. Best: AppLovin: +713%; MicroStrategy: +359%; Palantir Technologies: +340%; Nvidia: +171%; and Axon Enterprise: +130%.

Worst: Intel -60%; MongoDB: -43%; Biogen: -41%; DexCom: -37%; and Microchip Technology: -36%.

U.S. Treasury rates went up pretty much across the yield curve in 2024. Ironically (and unusually), yields began rising when the Federal Reserve began cutting short-term interest rates. The benchmark 10-year U.S. Treasury note yield jumped to 4.577 percent in 2024, up from 3.860 percent a year ago and 3.685 percent on the day the Fed announced its first rate cut in September. That's a move of nearly 100 basis points higher since the Fed's “pivot” to lower rates.

Over the last 60 years, only once have 10-year yields risen more in a rate-cutting cycle than last year. That was in 1981, when Fed Chair Paul Volcker took the funds rate down from its record high of 20 percent, and the bond market hated it (causing Ed Yardeni to coin the term, “Bond Market Vigilantes”).



The yield on the 2-year U.S. Treasury note rose slightly this year to 4.249 percent and the 30-year U.S. Treasury bond yield rose to 4.786 percent. Accordingly, the S&P U.S. Treasury Bond index returned + 1.30 percent for the year and the S&P U.S. Aggregate Bond index (which includes mortgage, corporate, agency, and asset-backed paper) gained 1.90 percent. 

In related news, the FHLMC average 30-year mortgage rate ended 2024 at 6.9 percent, rising for the fourth year in a row. That hasn't happened since 1978-1981.

Consumers voted with their cash as 2024 progressed, pouring money into both U.S.-stock and bond funds. They sent a net $177.2 billion to U.S.-stock mutual funds and ETFs in 2024, based on Investment Company Institute estimates while only $11.6 billion went to international-stock funds.

However, bond funds were the big winners in the flow of funds race, especially during the first half of the year. Anticipating the Fed’s rate-cutting moves, which began in September, consumers plowed nearly $500 billion into bond funds for all of 2024, according to the ICI estimates. However, late in the year, institutional investors began selling fixed income. With cash (in the form of U.S. Treasury bills) yielding well in excess of 4 percent as 2025 dawned, cash may not be king, but it remains an attractive alternative.

Wall Street strategists have reacted to a resilient economy, progress on inflation, and climbing corporate earnings by generally upping their 2025 forecasts for the market, to about a 10 percent premium to the S&P 500 – the most bullish forecast since 2022. Specific estimates aside, the broad consensus is for another positive year for stocks and gains at the sector level remaining widespread, with the bull market likely reaching its third anniversary in 2025. 

Not that you should put any stock in those forecasts. So to speak.

As always, there are reasons for concern. Stocks rallied when Republicans swept the November elections, raising hopes that business will benefit from tax cuts and looser regulation. But candidate Donald Trump proposed sweeping tariffs as well as mass deportations, policies that could add to inflation if enacted. Interest rates threaten to remain higher than anticipated, affecting borrowing costs for corporations and government entities alike, and potentially giving consumers lower-risk alternatives to the stock market. The Fed recently signaled doubt over how much more it will cut rates and U.S. Treasury yields had been rising even before that.

The powerful 2023-24 rally has also made stocks look increasingly expensive. At year-end, the S&P 500 traded at nearly 22 times its projected earnings over the next 12 months, according to FactSet, above the 10-year average of 18.5 times. However, much cheaper valuations exist away from the tech sector and international stocks are quite cheap. Small-caps are especially cheap, as the Russell 2000 is 8.7 percent off its record close from November 2021, while the S&P 500 has risen 25 percent over that time.

By traditional measures, the economy had another very good year in 2024. Inflation moderated, drifting down toward the Federal Reserve’s target of 2 percent, although inching upward most recently. Growth remained brisk, adding a commensurate number of jobs. And, as noted, the stock market (as represented by the S&P 500) hit 57 record highs.

By most measures, after adjustments for the impact of Covid, the economy performed roughly as well under President Biden as under President Trump, which was very well. But the lingering sting of inflation – the upward price movement has again slowed, but the impact of previous high inflation remains – was costly for Democrats.

In December, the Federal Reserve disappointed markets by lowering the number of projected interest rate cuts in 2025 from four to two. That change reflected a mix of good news (faster growth) and bad news (stubborn inflation).

The artificial intelligence boom continued to accelerate. AI has attained the fastest rate of adoption of any new technology in memory. The early success of OpenAI’s ChatGPT, which performed many tasks from drafting computer code to composing sonnets, helped spawn a slew of competitors and an even larger array of applications. The shares of companies at the center of the AI boom, such as the chip designer Nvidia, Meta, Alphabet, and Amazon, soared in 2024. AI may not prove to be the financial bonanza that the market is anticipating, but it seems certain to change our lives (as pretty much always, for good and for ill).

Among the brighter spots of the economy has been the strong surge in corporate investment, particularly in manufacturing facilities. The latter was substantially stimulated by two major pieces of legislation passed during the Biden administration. The (wrongly titled) Inflation Reduction Act offered tax credits and other assistance for climate-friendly energy projects while the CHIPS and Science Act allocated nearly $40 billion to stimulate production of semiconductors, products made mostly abroad, particularly in Taiwan, in the United States. Investment in other areas, especially relating to technology and artificial intelligence, has also been increasing rapidly, a promising sign for future economic growth.

Spectacularly Wrong

In 1970, long-time journalist Louis Rukeyser began hosting Wall Street Week on Public Television (parodied by SNL here) on Friday evenings, a tradition he would continue for 35 years. “Money is one of the two biggest preoccupations of most people – and the only one you can put on television during the family hour,” he quipped. The image above notwithstanding, People magazine would describe him as the only sex symbol of economics, “the dismal science.”

Fifty years ago, on December 6, 1974, Rukeyser was anything but glib, describing market conditions as a “winter of despair” (watch the episode here).

“There’s no question what we should call the present state of the U.S. economy, let’s call it a mess.”

Rukeyser’s panel discussed potential economic fixes, including tax cuts, but rued how long the proposed solutions would take to matter.

Rukeyser’s “special” guest that week, a Wall Street securities analyst, honored by Institutional Investor as the best in his field, explained why he thought the next year would continue to be terrible for stocks. 

He was spectacularly wrong.

At the close that day, unbeknownst to Rukeyser and his guests, of course, the Dow Jones Industrial Average had struck rock bottom. After surpassing 1,000 in 1973, the 1974 decline reached 577, the lowest it had fallen since the Cuban Missile Crisis of October 1962, and lower than every other close since. Indeed, the Dow exceeded 45,000 in December.

The market’s recovery began the following Monday, as did the subsequent tax-cut revolution, perhaps because of a White House meeting, also that evening, among Donald Rumsfeld, Dick Cheney, Jude Wanniski of The Wall Street Journal, possibly Congressional aide Grace-Marie Arnett, and economist Arthur Laffer of the University of Chicago. At this meeting, Laffer first drew his famous curve, indeed on a napkin, showing that tax rates can be so high that if you cut them, tax revenues will increase.

The then top federal tax bracket was a whopping 70 percent (it’s now about half that), and ever more income and corporate revenue was subject to that level of taxation on account of inflation. The tax code was not indexed for inflation, and was running at an incendiary 10.1 percent per annum. By way of comparison, the December 2024 annual CPI level of 2.7 percent riled people and markets.

I may be overstating things a bit. It remains unclear who got wind of the meeting and, of course, nobody knew for sure what would happen or how long it would take. Indeed, no tax cuts were implemented until 1978 and they continued in fits and starts.

Still, the lessons should be obvious. 

1. Context is everything.
2. Stocks can be powerful long-term wealth creation vehicles.
3. Stocks can and sometimes will hurt you in the short-term.
4. Stuff happens, even though more things can happen than will happen.
5. We’re terrible at predicting the future.
6. Political risk is unwieldy at best and largely unpriceable.
7. Boy howdy is it tough to call the bottom (or top).

Notwithstanding our human inability to predict the future, lot’s of people try.

Forecasting Follies

In the Star Trek universe, the Kobayashi Maru is a Starfleet Academy training exercise for future officers in the command track. It takes place on a replica of a starship bridge with the test-taker as captain. In the exercise, the cadet and crew receive a distress signal advising that the freighter Kobayashi Maru has become stranded in the Klingon Neutral Zone and is rapidly losing power, hull integrity, and life support.

The cadet is seemingly faced with a choice (a) to attempt to rescue the freighter’s crew and passengers, which involves violating the Neutral Zone and potentially provoking the Klingons into an all-out war; or (b) to abandon the freighter, potentially preventing war but leaving the crew and passengers to die. As the simulation is played out, both possibilities are set up to end badly. Either both the starship and the freighter are destroyed by the Klingons or the starship is forced to wait and watch as everyone on the Kobayashi Maru dies an agonizing death.

The objective of the test is not for the cadet to outsmart or outfight the Klingons but, rather, to examine the cadet’s reaction to a no-win situation. It is ultimately designed as a test of discipline and character under stress.

However, before his third attempt at the test while a student, James T. Kirk surreptitiously reprogramed the simulator so that it became possible to rescue the freighter. When questioned later about his ploy, Kirk asserts that he doesn’t believe in no-win scenarios. And he doesn’t like to lose. So he changed the game. Thus, for Trekkies, the test’s name is used to describe a no-win scenario as well as a solution that requires that one change the game to jerry-rig a solution to the proffered problem.

For would-be market experts, their Kobayashi Maru is a public market target, most often included in an annual market preview publication. It’s an expected part of the gig. Similarly, when a Wall Street strategist, economist, or even a run-of-the-mill investment manager or analyst gets a crack at financial television, he or she is routinely asked, often as almost an afterthought, to give a specific target forecast for the market. Instead of thinking like Captain Kirk and wisely objecting to the premise of the question, the poor schlemiel answers and, once matters play out, is inevitably shown to have been less than prescient. 

As I like to say, one forecast that is almost certain to be correct is that market forecasts are almost certain to be wrong.

Annually, I take a look at such predictions from the previous year and they are almost uniformly lousy. Moreover, when somebody does get one right or nearly right, that performance quality is not repeated in subsequent years. That’s because, at best, complex systems – from the weather to the markets – allow only for probabilistic forecasts with very significant margins for error and often seemingly outlandish and hugely divergent potential outcomes. Chaos theory establishes as much. Traditional market analysis has generally failed to grasp the inherent complexity and dynamic nature of the financial markets, which chaotic reality goes a long way towards explaining highly remarkable and volatile outcomes that seem inevitable in retrospect but were predicted by almost nobody.

2024 wasn’t any different.



How will the market perform? The answer to that oft-asked question, based upon data to date, is that it almost always provides between a 33 percent loss and a 50 percent gain, but there is about a 1-in-20 chance it could be outside that range. It was no different in 2024, but the relative normality of the year didn’t improve the forecasts any.

As ever, Wall Street denizens are often wrong but never in doubt.

A few have begun to concede that forecasting might be a problem (here, for example). Still, even when they concede it has never worked, they still think “it might work for us.”

The median year-end Wall Street 2024 forecast for the S&P 500 was 5,068, according to FactSet, implying an annualized gain of roughly 6 percent for the year.

Citigroup, Deustche Bank, and Goldman Sachs were the most bullish, calling for a year-end target of 5,100 (from a starting point of 4,770). Morgan Stanley was negative on 2024, calling for a year-end target of 4,500 and the avoidance of technology. Morgan Stanley’s Chief Strategist, Mike Wilson, finally capitulated in May. Morgan Stanley’s Chief Economic Strategist blew her call, too. 



The most bearish was JPMorgan Chase, whose team was led by Marko Kolanovic, dubbed “Gandalf” for his alleged foresight. He was elected to the Institutional Investor Hall of Fame in 2020. His 2024 year-end target was 4,200, down almost 9 percent. The year ahead will be “another challenging year for market participants,” Kolanovic opined. Gandalf was fired in July.

Bloomberg cast a wider net, looking at more than 650 market calls. Amundi and Vanguard were among those predicting “mild” recessions. To BNY Mellon Wealth Management, it was to be “a healthy and welcome slowdown.” Stifel called for a range-bound S&P and growth underperformance. “Tilt to fixed income,” insisted Franklin Templeton. “Bonds have their moment,” BNY Mellon Wealth proclaimed.

There were a few bulls. UBS Asset Management said if its base case soft landing was achieved, “global equities will comfortably ascend to new all-time highs in 2024.” There were 57 all-time highs in 2024.

The most bullish call in Sam Ro’s compilation was 5,500, up nearly 20 percent, by Capital Economics. That’s not bad, but still well short of actual returns.

Nobody believes there are sure things in markets, but many alleged experts thought high-quality U.S. bonds were pretty close as 2024 began. The consensus on Wall Street was that interest rates had peaked for the economic cycle. Traders in futures markets were betting the Federal Reserve would lower rates at its meeting March 20, followed by another four or five quarter-point cuts throughout the year. 

Nope.

The S&P closed 2024 at 5,881.63, up 25.02 percent on the year, including dividends. Bonds had another lousy year, how lousy it was depended upon which index you use as a proxy for bonds overall. For example, the S&P U.S. Aggregate Bond Index returned 1.82 percent in 2024.

And still no recession. Indeed, market economists have no better record than strategists.

Rate predictions failed, too.

Even the Fed itself, with more and better information than anyone, can’t predict what interest rates will do.

Bank of America said the S&P peaked at the end of July; as of the end of 2024, it had gained over 7 percent in the second half of the year. Jim Rogers was negative, too. Jim Rickards predicted a 50 percent crash. Gary Marcus called for the AI revolution to collapse in 2024. Even The Motley Fool predicted a crash. So did BCA Research. Strategist David Rosenberg, who had been maximally bearish about 2024, finally capitulated in December and apologized for his incessant bearishness.

Jeff Gundlach kept calling for a recession that wouldn’t come (he wrongly loved value and foreign stocks and called for S&P underperformance, too). He was not alone.

The perma-bears still hate the market, waiting for an inevitable downturn to prove them “right” (Hussman; Dent; Nations; Kiyosaki; Grantham; Burry).

As always (over the most recent 10 years, fewer than 10 percent of money managers have outperformed), and stock-pickers had a poor year in 2024.

A year ago, Barron’s asked its roundtable of alleged experts for their best 2024 ideas, “the next Nvidia.” None did very well. Indeed, most picks underperformed the market, many lost money, and only one made one-third as much as NVDA’s +171 percent. 

John W. Rogers, Jr., founder, chairman, co-CEO, and chief investment officer of Ariel Investments, did best. He picked Adtalem Global Education (+54 percent), Stericycle (currently subject to a tender offer at a healthy premium), Sphere Entertainment (+19 percent), Envista Holdings (-20 percent), and Leslies (-68 percent).

William Priest, chairman, co-chief investment officer, and a portfolio manager at TD Epoch, picked Meta (+66 percent), which handily beat the S&P 500, but his other four picks did not. RELX earned 16 percent, but the other three did poorly. Evolution Gaming Group lost 35 percent, ON Semiconductor lost 25 percent, and Keyence lost 7 percent.

David Giroux, CIO of T. Rowe Price Investment Management, picked RTX, a winner (+40 percent), Fortive (+2 percent), which underperformed the S&P 500 by about 23 percent, Waste Connections (+16 percent), which underperformed by nearly 10 percent, Canadian Natural Resources (-1 percent), and Biogen, which lost more than 40 percent. Scott Black, founder and president of Delphi Management, picked four stocks, all of which underperformed the index: Everest Group (+5 percent), Diamondback Energy (+11 percent), Oshkosh (-11 percent), and Global Payments (-11 percent).

Barron’s made its own picks, too. It provided a top ten list of stocks to outperform in 2024. Only one did so: Alphabet (+36 percent). Another marginally outperformed the S&P 500: Berkshire Hathaway (+25.49 percent). The other eight underperformed, with four in the red during a year of +25 percent returns: Alibaba Group Holding (+12 percent); MSG Sports (+12 percent); BioNTech (+8 percent): Chevron (+1 percent); Pepsi (-7 percent); U-Haul (-9 percent); Barrick Gold (-12 percent); and Hertz (-65 percent).

Wall Street analysts, in the aggregate, had Tesla stock losing about 3.5 percent in 2024; it was up a whopping 63 percent.



It always seems to be a stock-picker’s market, but few pick the right stocks.

Predictions have a long and ignominious history, especially about the future.

In 1876, the President of Western Union, William Orton, dismissed the telephone as a “toy” when Alexander Graham Bell offered to sell him the patent for $100,000. According to Orton, “The idea is idiotic on the face of it. Furthermore, why would any person want to use this ungainly and impractical device when he can send a messenger to the telegraph office and have a clear written message sent to any large city in the United States?”

Hollywood film producer Darryl Zanuck of 20th Century Fox was sure the appeal of television would be short-lived. In 1946, he said: “Television won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.” Today, the average American spends about five hours per day watching TV.

In 1950, Waldemar Kaempffert, science editor of The New York Times, foresaw a world where all food, “even soup and milk,” would be delivered to people’s homes in frozen bricks, and chemical factories would convert “rayon underwear” into sweets. Today, there’s a market for dehydrated meals, but they are mostly the preserve of astronauts, outdoor adventurers, and doomsday preppers.

In 1956, Soviet Premier Nikita Khrushchev was addressing Western ambassadors at the Polish embassy in Moscow. He told his audience that that communism’s defeat of capitalism was inevitable. “History is on our side,” he said. “We will bury you.” Thirty-three years later, communism collapsed, and two years after that the Soviet Union was dissolved.

In 1966, Time magazine boldly predicted: “Remote shopping, while entirely feasible, will flop – because women like to get out of the house, like to handle merchandise, like to be able to change their minds.” In 2024, e-commerce sales totaled about $6.3 trillion.



When he was a teenager, Frank Sinatra was rejected as a singing waiter at The Rustic Cabin, an Englewood Cliffs, New Jersey tavern, after an audition. His mother went to bat for him and the tavern relented and hired him, but only because his mother had local clout. Bandleader Harry James would eventually discover him there.

In 1995, Robert Metcalfe, founder of digital electronics company 3Com, said: “I predict the internet will soon go spectacularly supernova and in 1996 catastrophically collapse.” According to the latest available data, the average person spends about seven hours per day on screens connected to the internet.



In 2007, Steve Ballmer, then the CEO of Microsoft, said, “There’s no chance that the iPhone is going to get any significant market share. No chance.” There are 46 iterations of iPhone and about 1.4 billion users today.

So far, since 2010, solar energy has outperformed every single prediction. The same outperformance also exists for renewables as a whole.

Again, the universe of bad predictions is essentially unlimited.

As ever, 2024 had its share of clunkers in a wide variety of contexts.

Many, including Rob Reiner, were sure that Vice President Kamala Harris would be elected president (after a whole slew of folks predicted President Biden’s reelection, including Chris Matthews; my favorite is here). “A woman gave birth to each and every one of us. Tomorrow a woman will give birth to a renewal of our Democracy,” Reiner said. Some thought she would win big (my favorites are here and here).

Dilbert cartoonist Scott Adams forecast “a landslide of election rigging claims” with “no winner.”

“I think markets crash tomorrow if there’s a conviction [of former President Trump in New York],” Breitbart’s John Carney proclaimed. On May 31, 2024 – the first full day markets were open after Mr. Trump was convicted – the Dow climbed about 575 points, posting what was at the time its best day of 2024.

NYU’s Scott Galloway predicted that Elon Musk would sell Twitter.

Wealthfront recently filed to liquidate its $1.3B Risk Parity Fund. From its January 22, 2018 inception through November 1, 2024, the fund lost 2.8 percent of its value, compared to a 66.6 percent cumulative gain for the U.S. 60/40 mix over that span. 

MLB player Tucupita Marcano was permanently banned from baseball in 2024 for betting on hundreds of games, many in which he participated. He lost over 95 percent of those bets.

Here’s my favorite: Greg Amsinger of the MLB Network said, before the start of a game, “Don’t take this the wrong way, but we are already on no-hitter alert. Yoshinobu Yamamoto, before he throws a single pitch tonight against the Marlins.” Miami’s Jazz Chisholm took Yamamoto’s first pitch of the game deep.

The future is always imaginary, by definition. By the time we know, it’s no longer the future.

As should be obvious by now, we are monumentally poor at making predictions. Wharton psychologist Philip Tetlock examined decades of predictions about political and economic events and found that “the average expert was roughly as accurate as a dart-throwing chimpanzee.” And the markets keep making monkeys out of forecasters.

Here’s the bottom line.

1. We’re dreadful at predictions. As my friend Mark Newfield likes to say, the Forecasters’ Hall of Fame has zero members. See above.
2. When they’re right, it’s almost always luck, not skill (more here). Lots of reputations have been made being right once in a row. For example, Michael Moore, famous for being one of the few people who predicted Donald Trump’s election win in 2016, confidently declared that Mr. Trump would not win again in 2024 (Do The Math: Trump Is Toast). That’s further proof that even a stopped clock is right twice a day.
3. Even if we knew the future, we’d probably make the wrong trade (see for yourself, here). When Sam Bankman-Fried was at Jane Street Capital (before he became famous for FTX and convicted of fraud), he built a system to get the 2016 U.S. Presidential election results before any media outlet could broadcast them. It worked, and the Jane Street team knew Donald Trump had shocked the world and defeated Hillary Clinton before anyone else. But they still managed to lose money – a ton of money ($300 million!) – on the trade because they bet against U.S. markets into a big post-election rally. More examples here. 
4. And if we knew the future, and made the right trade, we’d almost surely bail too soon to take real advantage. My friend, Wes Gray, analyzed returns from January 1, 1927 through December 31, 2016 for the 500 largest American firms and created “look-ahead” five-year portfolios of the best performing stocks during that period. These hypothetical portfolios would have compounded at an annualized 29 percent (capacity restraints and, you know, our inability to predict the future wouldn’t allow this to happen in real life, of course). Such a “best possible” approach would still have yielded a 76 percent drawdown (as well as nine other drawdowns in excess of 20 percent) and been more volatile than the market. The “best possible long/short” approach would have yielded a CAGR of 46 percent but a drawdown of 47 percent (as well as six other drawdowns in excess of 20 percent) and been more volatile than the market. Who wouldn’t have bailed or fired the money manager (say, Biff Tannen Investments) if that happened? Best guess: Nobody.



Warren Buffett’s advice on forecasts remains spot-on. 

“We have long felt that the only value of stock forecasters is to make fortunetellers look good. Even now, Charlie [Munger, now deceased] and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

In early December, the founder and head of a Singapore-based hedge-fund that had survived for over 25 years sent a four-page letter to investors with bad news. The fund was closing. It had lost 7.9 percent in November alone and was down over 35 percent for 2024 (its benchmark of Asian stocks outside of Japan was up 8.6 percent). At least the candor was refreshing. “I have come to the realization that I am not good at what I am doing but I guess some of you may have sensed that already,” he wrote. He didn’t stop there. 

“I pretty much missed all the major themes in the last two years. I was hopelessly out of sync with the market, buying when I should be selling and selling when I should be buying. We got whipsawed several times this year even as we got some facts correct.” 



The lesson he drew: “sometimes the best investments are precisely the ones you cannot explain and probably made no sense.”

At least one guy seems to have figured things out, even if it was the hard way.

Things Change

It’s easy to miss how much things change over time. It should be no surprise that Warren Buffett has a mechanism to “see” this more accurately. It’s his favorite critical thinking exercise. The first time they met, over the Fourth of July weekend in 1991, Buffett introduced it to Bill Gates. 

“On that first day, [Buffett] introduced me to an intriguing analytic exercise that he does,” Gates said. “He’ll choose a year — say, 1970 — and examine the 10 highest market-capitalization companies from around then. Then he’ll go forward to 1990 and look at how those companies fared. His enthusiasm for the exercise was contagious.”

The exercise is productive because, to paraphrase Theodor Reik, history doesn’t repeat itself, but it often rhymes.

The idea is simple, as Gates noted. Choose a year and consider the top 10 companies by market capitalization. Then look forward to see how the list changes over time to spot emerging trends and to consider what has changed and what hasn’t, and how this information may impact your investment thesis. You can watch how those changes occur, from 1980-2020, below.

I started driving in 1972. Gasoline was $0.36 per gallon. Really. The oil crisis instigated by OPEC arrived quickly, with roaring inflation, rising prices, poor stock market returns, and long gas lines. By 1980, the price of a gallon of gas had shot up to $1.19, a more than three-fold increase.

That year, the S&P 500 was dominated by oil companies. Given the extent of the price increases, that shouldn’t be surprising.

The S&P top ten list included six of them: Exxon, Standard Oil of Indiana, Shell, Standard Oil of California, Mobil, and Atlantic Richfield. It also included Schlumberger, a oil services company. That’s seven out of ten oil-related. But 1980 was an oil price peak: $35 per barrel. That’s equivalent to $129 per barrel in 2024 dollars. By way of comparison, oil closed 2024 at $74.69 per barrel, down 3.6 percent from $77.50 at the start of the year. By 1990, only Exxon and Shell remained in the top ten.

Along with Exxon and Shell, IBM, GE, and AT&T remained in the top ten in 1990. IBM retained the top spot, while GE jumped from tenth to third. A much smaller AT&T also remained, having fallen from second to ninth after the 1984 spin-off of seven regional local carriers (the “Baby Bells) due to the settlement of the federal government’s antitrust enforcement action. Newcomers included consumer companies like Coca-Cola and Philip Morris, pharmaceuticals like Bristol-Myers Squibb (Bristol-Myers and Squibb had merged in 1989) and Merck, and Walmart, which was driving U.S. retail. 

Four of 1990’s top ten were still there in 2000. GE jumped over Exxon to the top spot as the oil company (which had bought Mobil in 1998 in what was then the biggest merger ever) stayed at number two. Walmart moved from eighth to sixth, while AT&T dropped from seventh to ninth.

GE was a diversified behemoth, labeled an industrial but largely a de facto financial. The dot-com bubble was deflating. Gates’ Microsoft, Cisco, and Intel were there, but at roughly half their earlier market cap peaks. The 1999 list included those three plus Lucent, IBM, and AOL. Walmart was on top of the retail world, driving mom-and-pop shops out of business nationwide.

Pharmaceuticals remained strong as Pfizer entered the list at third and Merck stayed in the top ten (it dropped from sixth to eighth, but grew its index share from 1.6 to 1.8 percent). Two big financials hit the list for the first time: Citi and AIG. 

IBM topped the list in 1980 and 1990, but was off it entirely by 2000. The computer mainframe giant began encountering difficulties in the late 1980s, marked by substantial losses, which surpassed $8 billion in 1993. The mainframe-centric corporation lost touch with its customers, squandered its technological leadership, and missed out on the personal computer revolution.

Also off the list for 2000: Philip Morris (still profitable due to international markets, but tobacco was more and more a social pariah in the U.S.), Shell (Exxon was the only oil company remaining in the top ten, but had merged with Chevron the year before), Bristol-Myers Squibb, AT&T (facing competition from the likes of MCI and Sprint — it seemed like telemarketers hawking long-distance service, who had become a thing, called my landline a dozen times a night then), and Coca-Cola (after peaking at number two in 1996, it began losing market share to bottled water, juices, and other non-carbonated drinks).

Exxon and GE were the only companies from the 1980 list still on it in 2000.

The ten-year period between 2000 and 2009 is often called a “lost decade” for U.S. stocks, which faced major drawdowns around the turn of the century (the “tech wreck”) and the Great Financial Crisis of 2008-09. From January 2000 through December 2009, the S&P 500 lost 0.72 percent per annum, including dividends.

In 2010, Exxon stayed at number one (oil prices had skyrocketed over the previous ten years), Microsoft moved up to third, GE fell to fifth, and Walmart stayed sixth, but only Exxon grew its market cap significantly (Microsoft’s was basically flat; GE’s and Walmart’s fell). Chevron, which had been known as Standard Oil of California, returned to the top ten at number eight. IBM, at nine, made it back, too. The altogether new names were Apple, Buffett’s Berkshire Hathaway, Google (now Alphabet), and Proctor & Gamble. Pfizer, Cisco, Citi, AIG, Merck, and Intel fell out of the top ten.

Citi and AIG almost blew up entirely during the Great Financial Crisis. In 2008, Citigroup’s stock price dropped almost 80 percent. AIG fell over 90 percent. Both were bailed out by the U.S. government.



Exxon’s growth and Chevron’s return were largely predicated upon America’s “energy revolution” and (mostly) the big increase of world oil prices. Indeed, energy was the best performing market sector from 2000-2015. From the tech sector, the top ten included four names, including the entry of Apple (the first-generation iPhone was announced by then–Apple CEO Steve Jobs on January 9, 2007) and Google (which had only come to market in 2004). IBM’s return was fueled by growing earnings, growing dividends, and buying back stock at cheap valuations. Even Buffett, whose BKB made the list, was about to buy (he bought into IBM in 2011, although the trade didn’t turn out well; he was out in 2017, having earned about 5 percent per year, including dividends).

All 1990 list members are gone by 2010.

The 2020 top ten list is very tech heavy. Apple, buoyed by quality products, Buffett’s big position (he bought his first stake in 2016 and added very substantially in 2020), and very sticky customers, led the parade. Microsoft, Amazon, Facebook (now Meta), Tesla, and Alphabet (A and C) hold down spots 2-7. Berkshire Hathaway, Johnson & Johnson, and JPMorgan Chase round out the list. Amazon, Facebook, Tesla, J&J, and Chase were new to the list; (Google parent) Alphabet added a second class of stock to the list; Exxon, GE, WMT, Chevron, IBM, and P&G fell out. 

Only Microsoft remained from the 2000 list.

As 2025 dawned, Apple, Microsoft, Meta, Tesla, Alphabet A and C, and Berkshire Hathaway remained top ten stocks. Nvidia was the new, big giant. Broadcom was now on the list, too. JPM dropped to 11. Exxon came in at 14. Walmart, P&G, and J&J were in the top 25. We’ll see what 2030 and beyond bring.

What can we learn from this exercise or, at least, be reminded of? Here are ten to start.

1. It’s hard to stay on top. 
2. The broader economy matters. Often a lot.
3. The S&P 500 experiences a surprising amount of turnover. Half of the top ten list seems to change every decade. More broadly, since 1980, roughly one-third of the S&P 500 constituents have turned over during the average 10-year period. The speed of such changes is increasing. The 30 to 35-year average tenure of S&P 500 companies in the late 1970s is likely to shrink to 15-20 years this decade.
4. America is no longer the manufacturing power it used to be. When I learned to drive, industrial companies made up about one-third of the S&P 500. Such companies make-up about one-seventh of the index today (although, after decades of decline, there has been an uptick lately). 
5. Technology growth has exploded. When I learned to drive, there were only 16 Information Technology companies represented in the S&P 500, the second-fewest of any industry represented. There are about four times that number now.
6. You won’t see it from the top ten lists, but nobody should be surprised at the drastic changes we’ve seen in traditional retailing. Dropping out of the S&P 500 during the pandemic were an array of venerable retailers, such as Nordstrom, Macy’s, Kohl’s, and Tiffany & Co. Amazon has ascended.
7. Politics and the law have big impacts (see, e.g., AT&T).
8. Changing social mores matter (see, e.g., Philip Morris).
9. Changing tastes matter (see, e.g., Coca-Cola). Thus, adaptability is crucial.
10. Artificial intelligence (e.g., Nvidia), and clean technology (e.g., Tesla) remain industries to watch.

What They Do

Josh Brown’s fine book, Backstage Wall Street, does an excellent job illuminating what Wall Street wants to hide from clients and investors. Like the Wizard in The Wizard of Oz, the Street would have us pay no attention to what is really there – “behind the curtain.” Yet, once in a great while, the Street rats itself out so that we get to find out, without a shadow of doubt (if we still had any), what the big investment houses really think about what they do and who they do it to.

It isn’t pretty.

The now-defunct Bear Stearns won a noteworthy 2002 litigation involving former Fed Governor and then-Bear Chief Economist Wayne Angell over advice he and the firm gave to a Bear Stearns client named Count Henryk de Kwiatowski (really) after the Count lost hundreds of millions of dollars (really) following that advice (back story here). The jury awarded a huge verdict to the Count but the appellate court reversed. The appeals court held that brokers may not be held liable for honest opinions that turn out to be wrong when providing advice on non-discretionary accounts.

That’s a justifiable decision, especially in a world where brokers are not fiduciaries.

Yet, for our purposes herein, I’m not primarily interested in the main story, fascinating as it is. Instead, I’m struck by a line of testimony offered at trial by the then-Bear CEO, the late Jimmy Cayne. Cayne apparently thought that his firm could be in trouble, so he took a creative and disarmingly honest position given how aggressive Bear was in promoting Angell’s alleged expertise. Cayne brazenly asserted that Angell was merely an “entertainer” whose advice should never give rise to liability.

Economists are right only 35-to-40 percent of the time, Cayne testified. “They don’t really have a good record as far as predicting the future,” he said. “I think that it is entertainment, but he probably doesn’t think it is.” That isn’t far off, as my forecasting pieces routinely show (see here, for example). Somehow, however, I doubt the Count was entertained. Or amused.

Cayne even noted that Angell did not have a real job description at Bear. “I don’t know how he spends most of his time,” testified Cayne. “He travels a lot and visits people and has lunches and dinners, and he is an entertainer.”

Notice that Cayne did not even pay lip service to the idea that clients were entitled to the firm’s best efforts based upon the best research (or even their best research). Moreover, he did not seem to think that the Count deserved honesty together with competent advice. For Cayne, the goal was simply to be entertaining so as to make sales. That the Count lost hundreds of millions of dollars was merely collateral damage (and not even necessarily unfortunate at that).

To look at the Count’s case a bit differently, in an odd sense, Cayne was precisely if hypocritically correct. As both Josh and I have noted before, we’re in the Wall Street “silly season” of predictions and forecasts for the New Year. There is nothing inherently wrong with them, and they can be very (yes) entertaining and, once in a while, illuminating. But you shouldn’t take them any more seriously than Jimmy Cayne did.

As Wharton’s Philip Tetlock told Tyler Cowen: “We want a lot of things from our forecasters, and accuracy is often not the first thing. We look to forecasters for ideological reassurance, we look to forecasters for entertainment [there’s that word again], and we look to forecasters for minimizing regret functions of various sorts.” Barry Ritholz is more direct: “All forecasts are marketing.”

Both are correct.

And you should always be aware of who has (and especially who doesn’t have) your best interest in mind – practically, realistically, and legally.

Still, forecasting (of a sort) is a necessary thing.

We may be lousy at market forecasts (and we are), but the idea that we can live our investing lives forecast-free is as erroneous as the market predictions that are so easy to mock. As Cullen Roche has emphasized, “any decision about the future involves an implicit forecast about future outcomes.” As Tetlock wrote: “We are all forecasters. When we think about changing jobs, getting married, buying a home, making an investment, launching a product, or retiring, we decide based on how we expect the future to unfold.”

It’s a grand conundrum for the world of finance. We desperately need to make forecasts to succeed but we are remarkably poor at doing so. What should we do with that knowledge?

Most of the time, at least, we should play the probabilities.

Warren Buffett, perhaps the world’s greatest investor, buys stocks and holds them. His “favorite holding period is forever.” The typical investor … not so much.

If you don’t want to invest in equities because you fear a market downturn, then you shouldn’t be in equities. However, you must also recognize that, if you avoid stocks, you will almost certainly end up with a lot less money and, the longer you live, the difference between what you have and what you could have had will compound ... a lot. That’s risky, too, albeit a different sort of risk.

All of which raises what is likely the crucial question in this regard: Are you a long-term investor?

Truly being a long-term investor is difficult because the long-term feels like an eternity in the moment. As the late, great Daniel Kahneman has explained, “the long-term is not where life is lived.”



Wall Street’s business model is designed to get you to put your money in motion – early and often – even though time is perhaps the one true advantage retail investors have.

Source: JP Morgan Asset Management

Historically, almost 54 percent of individual trading days are positive — just over half. In 2024, it was almost 57 percent. On an annual basis, it’s nearly three-quarters of the time. A holding period of two-years has been positive over 80 percent of the time. At just over five years, the probability reaches 90 percent. And after 15 years, historically (in the U.S.), all returns have been positive. The longer the holding period, the more likely the outcome is to be positive.

To be clear, none of this is cast in stone. Just because something has always worked doesn’t mean it always will. The worst that has ever happened isn’t a limit on what can happen. Things can always get worse. Past performance is not indicative of future results. If you doubt me, ask Japanese investors how “stocks for the long run” has performed for them, or ask risk managers how VaR worked for them during the Great Financial Crisis.

It should also be noted that the perma-bears could (finally) be right. A market crash might be imminent.

But that’s not the way any of us who are long-term investors should bet. The probabilities favor investment, especially for long-term investors. By a lot.

Source: JP Morgan Asset Management

Our brains all echo with fearful thoughts, whispers, and imprecations. For most of us, most of the time, we’d do well to ignore them about our investment choices. Instead, we should listen to the Christmas angel, even though Christmas is over, and “fear not.”

In the near term, markets act as a voting machine, subject to the emotions, whims, and headlines of the moment. Over longer periods, markets act as a weighing machine, separating reality from fantasy. Ultimately, reality wins.

The U.S. stock market is a call option on American ingenuity, innovation, and human resiliency. And it’s highly dangerous to bet against America.

Why an Outlook at all? 

So why an Outlook at all?

There are three primary reasons. The first is that doing so is interesting and fun. It forces serious consideration of what has gone on and what's going on. That is a valuable exercise. The role of a financial advisor is less to predict the future and more to see the present clearly.

Secondly, longer-term outlooks (and especially those based upon appropriate valuation measures) do have a history of very rough accuracy. We can have almost no idea of what will happen in the near-term while still having a pretty good idea of what investment prospects and returns should look like over the next 5-10 years. 

Finally, a good Outlook can remind us where we are and highlight the trends and possibilities we are most likely to face going forward. As Howard Marks puts it, “while we never know where we’re going, we ought to know where we are.” There are so many variables and “unknown unknowns,” to use Donald Rumsfeld's famous phrase, that we will necessarily be wrong a lot. Nobody can offer Truth with a capital “T.” But it is possible to be helpful. It's a modest but important goal.

Issues of Concern

As noted, 2024 was excellent indeed and 2025 looks promising. However, I’m thinking about – worrying about – a variety of issues that might alter that outlook. In 2024, many bad things happened, but nothing derailed the market’s performance. In general, as in 2024, the market is resilient enough to overcome bad things.

But not always.

Moreover, it’s the things we don’t expect that disrupt things, at least historically. That’s why forecasting is so difficult. Here are ten things I’m concerned about for 2025 – things that I'll be watching.

Expected Returns. As noted, forecasters have a dreadful record predicting near-term market performance. However, they are much better at predicting longer-term performance. In the longer-term, bonds provide returns roughly equal to their coupons while stock market performance is predicated upon corporate earnings and valuations. Going forward – again, for the longer-term – there are reasons to expect lower returns for domestic stocks.

Consistent with these long-range forecasts, after two consecutive yearly gains of more than 20 percent, the average annual return for the S&P 500 has been a more modest 6.7 percent.

Despite elevated political uncertainty, Wall Street expects the economy to keep growing, which should be good for sales growth. Juiced by profit margin expansion, earnings are expected to grow at a double-digit rate. This earnings growth will be crucial because, as noted below, valuations already seem stretched.

More particularly, Wall Street analysts expect profits from companies in the S&P 500 to grow 15 percent in 2025, up from a projected 9.5 percent for 2024, according to FactSet, and do have a decent prediction record in this regard, too. That said, traders look ready to punish companies that don’t produce. Late in the year, Adobe shares dropped 14 percent in a day after the software maker offered weak sales guidance.

Most of the time, stocks go up. But there is no guaranty this long-term trend will continue. 

Non-U.S. Stocks. Virtually every market outside the U.S. looks like a bargain. As a group, the P/E ratio of stocks outside the U.S. is just 13. To some, the conclusion is clear: Rational investors ought to shift their holdings from rich domestic stocks to these cheaper international markets. But not everyone agrees. There is an entirely plausible explanation for why domestic stocks to be so expensive. In short, it’s because the technology companies that dominate the domestic market are far larger and more profitable than their international competitors. The rest of the world can’t match the power of American technology companies. Moreover, many economies outside the U.S. have been struggling more or less continuously since the 2008 financial crisis due to sovereign debt issues and stubbornly slow growth. These issues may be structural rather than temporary.

Artificial Intelligence. AI was a key factor driving market performance in 2024. Most expect that to continue. Its impact will be huge – not all of it good – and subject to unintended consequences. Goldman Sachs thinks AI will add $7 trillion to the global economy over the next decade. But it will also eliminate many jobs. Previous technological innovations ended up creating more jobs in the aggregate, but they were different jobs, making the enterprise highly disruptive. Think customer service. Data analysis. Project management. There is no way to forecast how things will change or how fast they will change, but the betting line is more and faster. For example, Amazon's recommendation system, powered by AI agents, already generates 35 percent of its revenue.

The American Dream. The traditional American Dream is becoming increasingly expensive and is thought to be out of reach for more and more people. More than half of Americans believe it’s unlikely younger people today will have better lives than their parents. If true, greater political unrest and upheaval is likely.

Tariffs. As of this writing, it isn’t yet known what President Trump’s tariffs will look like. However, respectable economists across the political spectrum have uniformly found that the tariffs Mr. Trump has frequently promised will substantially raise prices for U.S. companies and consumers (up to $3,900 per household) and act as a significant drag on the economy overall. Particularly painful for consumers would be necessities, like certain fruits or shoes, that, even with tariffs, still won’t be made here in significant volumes. Similar costs would be borne by U.S. companies (e.g., foreign-owned manufacturers that import proprietary inputs from affiliates abroad) that can’t quickly and easily (if at all) move their entire supply chains to the United States. Retailers and wholesalers would, of course, suffer too.

Bond Market Strangeness. The bond market has been acting unusually since the Federal Reserve “pivot” to lowering the fed funds rate. As that very short-term rate went down, longer-term rates increased significantly. That atypical trend bears watching.

Inflation. It seemed we ought to have been able to forget about inflation by now. It was trending down, the Federal Reserve was cutting rates, and most thought we could move on to averting a recession and sustaining employment. But startlingly strong U.S. employment, a global surge in bond yields, and a big rally for the dollar – coupled with inflation data that wouldn’t keep falling – all ensured that inflation would remain in big concern in 2025.

China. China is an increasingly belligerent adversary. Waiting patiently to obtain and assert global leadership, the optimum time for China to take the initiative will likely be at the moment of America’s greatest distraction by internal disorder: perhaps accelerating its timetable to seize Taiwan (note that Taiwan produces over 60 percent of the world’s semiconductors and over 90 percent of the most advanced ones and about one-third of global equity market cap relies on TSMC silicon). 

Here in the U.S., you may have missed China’s hack of the Treasury Department, FBI, and de facto takeover of the telecom systems that police use for wiretapping criminals (to which they had access for years). We do not yet understand the full-extent or persistence of this epic compromise. Departing FBI Director Wray warned: “The Chinese government is pre-positioning on American civilian critical infrastructure to lie in wait in those networks – to be in a position to wreak havoc and inflict real world harm at a time and place of their choosing.” And it’s been only about two months since the U.S. caught China using a spy balloon for surveillance.

Most prominently in today's news, there is dispute over whether TikTok should be banned if it remains controlled by the Chinese Communist party. It has been well known for years that TikTok is an intelligence operation, accessing and harvesting data from millions of Americans.

China gives us much to worry about.

Debt and Deficits. In a year of surprises, rising U.S. national debt wasn’t one of them. Federal obligations rose another $2.2 trillion in 2024, after an increase of $2.6 trillion in 2023, $1.8 trillion in 2022, $1.9 trillion in 2021, and $4.5 trillion in 2020. Total national debt now exceeds $36 trillion, more than $13 trillion higher than its level just five years earlier (a 57 percent increase).

The federal deficit now exceeds $2 trillion. It is a function of government spending ($6.9 trillion) far outpacing tax revenue ($4.8 trillion). Remarkably, over the past decade, tax revenue has increased by over 60 percent, but that revenue growth has been dwarfed by a 99 percent increase in government spending. This debt is increasingly expensive to service, due to added volume and rising interest rates.

The current annual interest expense on U.S. public debt now exceeds $1.1 trillion, another record high, and more than our annual defense expenditures. The problem has been exacerbated by the abject disinterest both major political parties have shown in dealing with the problem.

Every percentage point that interest rates go higher adds about $2.8 trillion over a decade and $30 trillion over 30 years in interest costs. That’s the equivalent of adding an additional Defense Department. That’s just for one percentage point.

The Trust Deficit. In my view, the greatest deficit in American life is trust. We don’t trust each other, our institutions, or even ourselves. That is not a condition that fosters growth and well-being. One potential silver lining is that financial professionals who can engender trust and confidence will have an enormous competitive advantage.

Great Ideas

What follows are my top ten best ideas for managing your money in 2025 and beyond. These are “evergreen” ideas – ideas that are always good and are much more important than any 2025-specific ideas. If you follow-through on these “perennials,” you will almost surely be in excellent shape. These ideas are always good. You will have seen them before, including in previous Outlooks. Ignore them at your peril.

Save more. Advisors who focus on retirement planning spend a lot of time and energy considering such things as asset allocation plans, decumulation strategies, and needs analysis. But advisors and their clients spend far too little time and energy on the most important factor of all – how much money is saved and how to save it. Saving is the most fundamental and most important component of successful investing. 

As my friend Wade Pfau succinctly points out in his seminal paper on this subject, “[t]he focus of retirement planning should be on the savings rate rather than the withdrawal rate.” Put another way, “someone saving at her ‘safe savings rate’ will likely be able to finance her intended [retirement] expenditures regardless of her actual wealth accumulation and withdrawal rate.” Using Wade's analysis, these “safe savings rates” generally range from 9.3 percent to 16.6 percent over 30 years under various sets of market conditions. Simply put, we should all be maxing-out out our defined contribution plans, usually a 401(k), every year of our working lives and leaving the money untouched until retirement.

Aggressive saving allows one to take advantage of compound interest, the so-called “eighth wonder of the world.” The best thing any of us can do for ourselves and for our families' futures is to save more and to keep saving more. 

Plan. Similarly, we should all have a carefully constructed plan for dealing with our financial futures. Every financial planning client, like every financial planner, should have such a comprehensive financial plan in writing and in place.

Diversify. The theory behind diversification is simple: Don't put all your eggs in one basket. A single holding has huge potential for gains if the right instrument is selected, but even huger risks (because investing "home runs" are so hard to come by). In general, the greater a portfolio's diversification, the lower its riskiness. Lower risk is a good thing, but only if the portfolio's potential return is healthy enough to meet the client's needs. Fortunately, a well-diversified portfolio captures most of the potential upside available with much lower volatility.

A diverse portfolio – one that reaches across all market sectors, foreign and domestic – ensures that at least some of a portfolio's investments will be in the market's stronger sectors at any given time, regardless of what's hot and what's not and irrespective of the economic climate. At the same time, a diverse portfolio will never be fully invested in the year's losers. For example, according to Morningstar Direct, about 25 percent of U.S. listed stocks lost at least 75 percent of their value in 2008 but only four of over 6,600 open-ended mutual funds lost more than 75 percent of their value that year. 

J.P. Morgan Asset Management published the distribution of returns for the Russell 3000 from 1980 to 2014. Forty percent of all Russell 3000 stock components lost at least 70 percent of their value and never recovered. Effectively all the index’s overall returns came from seven percent of components. Thus, a diversified approach provides smoother returns over time (even if not as smooth as desired!). On the other hand, a well-diversified portfolio will always include some poor performers, and that's hard for us to abide. As my friend Brian Portnoy quips, diversification means always having to say you're sorry. 

So, as a starting point, make sure your time horizon is long enough. If you don't have at least a five-year time frame before using the money, stocks are almost surely a bad idea. That's because the chances of negative returns over shorter time periods are too high. But over the longer term, our investment prospects with equities are bright.

Diversification pays off over the longer haul. It's the one sure "free lunch" in investing. I recommend it yet again, as always.

Rebalance. In terms of performance, stocks have crushed bonds in recent years. That means portfolios that have not been rebalanced to each individual "right" level based upon goals and risk profile will be heavily overweighted in stocks.

Rebalancing means selling low and buying high, at least relatively. In an uncertain world, that approach makes sense.

The “political trade” is a threat. We know that basing your investment decisions on your politics is a recipe for disaster (as detractors of President Obama who avoided the market from 2009 going forward found out and as detractors of President Trump discovered after the 2016 election). That's especially true because a president has far less control of market performance than is generally assumed. Those who love or (especially) hate any given political person, party, or policy need to be very careful that their politics don't dictate their investment decisions. 

“Personal Volatility” is dangerous. While a further correction or even a market crash remain real possibilities, the “personal volatility” of trying to time the market is almost always a bad idea. As the great investor Peter Lynch put it, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” Furthermore, those who guess right and get the sell timing right almost never get the buy-back-in timing correct. Trying to guess and time the market almost never works once, much less twice or more.

Overall, markets are positive roughly three-out-of-four years. The market's path of least resistance is higher, making big cash positions a major risk. Moreover, investors and advisors should temper their tendency to fire money managers for recent underperformance. Multiple studies have shown that the wealth lost by investors from the practice of firing and hiring managers on the basis of recent performance – at both the personal and institutional levels – far exceeds the average net-of-cost underperformance of active management. This sort of "personal volatility" is highly dangerous.

Guaranteed income. Since at least 1965 and the seminal research of Menachem Yaari, economists have recognized that retirees should convert far more of their assets into guaranteed income vehicles during retirement than they do. Guaranteed income is the surest way available to deal with the three great threats to retirement income security: longevity risk, sequence risk, and stupidity risk. 

Longevity risk is increasing steadily in that life expectancies continue to expand throughout the developed world and is exacerbated because consumers are both retiring earlier and have less and less access to private pensions. Moreover, the distribution of longevity is wide. Guaranteed income vehicles hedge longevity risk simply and efficiently as risk pooling makes them 25-40 percent cheaper than do-it-yourself options. Thus, retirees who purchase an income annuity assure themselves a higher level of consumption and guarantee it as well.

Sequence risk relates to market volatility and the order in which returns on a retiree's investments occur. Essentially, when drawing income from a portfolio, low or negative returns during the early years of retirement will have a greater impact upon overall success rates than if those negative or low returns occurred at a later point of retirement, even if the overall average return was the same. Therefore, if poor returns and ongoing withdrawals deplete a portfolio before the "good" returns finally show up, financial disaster can occur.

Stupidity risk relates to the management of portfolios to provide retirement income. Allegedly "safe" withdrawal rate provisions assume that both consumers and advisors will make and continue to make good choices throughout retirement. What we know about cognitive and behavioral biases as well as the real-life actions of consumers and advisors during periods of market stress doesn't just suggest, they scream, that we should be skeptical about the ability of people to make good decisions and keep making good decisions when the going gets tough.

Most “safe withdrawal” analysis assumes safety as something like a 90-95 percent success rate over a set period, commonly 30 years, and emphasizes that, most of the time, this approach should not only work, but should provide significant portfolio growth. However, with the consequences of failure being so high – being destitute at a time in life when vulnerability is at a peak – a 5-10 percent failure rate (which may be too low given that “100-year floods” seem to happen in the markets about once a decade or so) hardly qualifies as anything like “safe.” Moreover, limiting the analysis to a set period is similarly deceptive due to longevity trends.

Guaranteed income is almost always a good idea in retirement. For those who have saved less than they ought to have, it is crucial. Now that interest rates have increased substantially, guaranteed income vehicles are much more attractive than they had been in recent years.

Don’t forget about other forms of insurance either. Volatile markets provide effective reminders that stocks, despite their unmatched long-term value, can and do lose money sometimes. Those same volatile markets also provide a good opportunity for investors to make sure their insurance needs are in good order. Diversification in retirement planning approaches always makes sense.

“A sense of where you are.” The Pulitzer Prize-winning writer John McPhee wrote a wonderful book – his first, in 1965 – about Bill Bradley at Princeton called, indelibly, A Sense of Where You Are. It was about Bradley as the best basketball player Princeton had ever seen as well as his self-discipline, his rationality, and his sense of responsibility. The title comes from Bradley always knowing his position on the court, in relation to the basket, his teammates, the opposition, the situation and the score. 

Speaking to McPhee in the Princeton gym, Bradley looked him straight in the eye while tossing the ball cleanly through the hoop. McPhee was astonished. “When you have played basketball for a while, you don't need to look at the basket when you are in close like this,” Bradley said. “You develop a sense of where you are.” Bradley's constant awareness, as well as his athletic gifts, distinguished him as a player.

Good investors also need exceptional self-awareness. Dealing with risk doesn't just mean knowing how much tolerance one has for pain when markets are uncooperative. It means understanding how much risk capacity one can undertake without putting one's financial goals at risk and how much risk must be taken to assure that one's financial and investing goals are likely to be met. It recognizes that risk avoidance can be just as damaging as foolish risk-taking. It means understanding which risks are real and which are illusory. We all need a "sense of where we are" in our financial and investment journeys.

Don’t bet against America. As the late David Swensen, long-time head of the Yale Endowment, emphasized, “we should never underestimate the resilience of this economy.” As Warren Buffett said, “When stocks go down, it’s good news. You can’t predict what stocks will do in the short run, but you can predict that American business will do well over time. The only person who can cause you to get a bad result in stocks is yourself.”

Avoiding stocks is betting against the American economy. Doing so has never turned out well. Don’t sleep on U.S. stocks. 

Don't go it alone. American virologist David Baltimore, who won the Nobel Prize for Medicine in 1975 for his work on the genetic mechanisms of viruses, once told me that over the years (and especially while he was president of CalTech) he had received many manuscripts claiming to have solved some great scientific problem or to have overthrown the existing scientific paradigm to provide some grand theory of everything. Most prominent scientists have drawers full of similar things, almost always from people who work alone and outside of the scientific community. 

Unfortunately, these papers didn’t do anything remotely close to what was claimed, and Dr. Baltimore offered some fascinating insight into why he thinks that's so. At its best, he noted, good science is a collaborative, community effort. On the other hand, crackpots work alone. We all work better with help, advice, support, correction, criticism, and accountability. A good financial advisor not only can provide a good financial plan with excellent investment choices. He or she can also provide needed guidance for perhaps the hardest work to be done in finance: managing expectations, behavior, and our inevitable mistakes. Make sure you aren't trying to go it alone in the investment world.

Back to Basics

In the context of volatile and difficult markets (and markets are always difficult and volatile), it is important and helpful to restate some first principles about investment advice and what it can accomplish.

• The performance of a portfolio, especially relative to some arbitrary index, is not of primary importance. The only benchmark you should care about is whether you are on track to achieve your financial goals. 
• Volatility is not the same thing as financial risk. Real risk is the likelihood that you won’t achieve your financial goals. Your assets should be invested to try to minimize that risk.
• Goal-focused investing is the recipe for long-term financial success. This recipe doesn’t change when the market changes. In a world of seemingly limitless information, patience and discipline provide an enormous advantage. 

Great interpretations of difficult data sets, especially those involving human behavior, require more sculpting than tracing. Portfolio optimization is a wonderful scientific ideal. But portfolio optimization alone pays insufficient attention to the needs, desires and vagaries of the investor who owns it. At best, any Outlook is no more than the roughest of outlines.

Your mileage can and will vary.

Keep your attention focused squarely on specific needs, goals, and what you can reasonably expect to control about your portfolio and its results. In difficult and volatile times (Spoiler Alert: we live in difficult and volatile times), it helps to get back to basics and that’s about as basic as it gets.

I sincerely wish each of you a safe, happy, and prosperous 2025.