Opportunity Ahead: Growing Your Portfolio in 2025
Last year was excellent for the U.S. market, with stocks up 25% after increasing 26% in 2023. It was an outstanding performance compared to international stocks that struggled during the year due to the rising dollar. The 2024 market was largely driven by major technology companies, including Amazon, Facebook, Tesla, and Google, together known as the “Magnificent Seven.” However, while stocks soared, bonds struggled amid rising interest rates. As we look ahead to 2025, the U.S. financial market offers a mix of optimism and cautious planning.
Economic Outlook for 2025
This year, the U.S. economy remains uncertain. The Federal Open Market (FOMC) predicts the GDP will slow from 2.5% to 2.1%, with inflation expected to decline as well. Plus, policy changes under the Trump administration may add another layer of uncertainty for the U.S. economy, such as the potential growth of federal debt. By understanding key market trends and taking proactive steps, Brown Financial Advisory can help better position portfolios for growth as we navigate potential uncertainty in 2025.
Portfolio Positioning
- Bonds are Back: After years of low returns, bonds now offer some of the most compelling opportunities than they have in several years. With significantly higher yields, bonds can be a foundation for stability and growth. If interest rates go down, they could yield significant returns, and even if interest rates rise, bonds still won’t lose much value.
- Small Companies Offer Big Potential: While smaller companies, or “small-caps,” have faced challenges in the past few years, 2025 could be their time to shine. Earnings for small-caps are projected to grow by 44% this year due to improving economic conditions.
- Diversification Matters: This year, large U.S. companies, or “large-caps,” including the “Magnificent Seven,” will continue to drive much of the U.S. market’s growth. In fact, in 2024, these companies accounted for 55% of the S&P 500’s annual return, collectively delivering a remarkable 48% return for the year. Without their contribution, the S&P 500 would have gained only 10%. However, these stocks are expensive, with little room for growth. Diversifying your portfolio and investing into small companies (“small-caps”), international stocks, and bonds can balance it and reduce risk.
We see a favorable outlook for portfolios looking ahead to our Brown Financial Advisory 5-10 Year Asset Class and Model Return. While the economy is expected to grow, inflation and interest rates remain uncertain. At Brown Financial Advisory, we can help you navigate potential volatility and uncertainty. For a deeper breakdown of our economic outlook, watch the video below.
We remain optimistic about the 2025 economy and want to help you be proactive in your financial planning. Learn more about our Investment Management Philosophy and common sense approach to maximizing your portfolio. If you have any questions, please contact us. We’d love to hear from you.