New Year, New You, New Investment Strategy?
Starting the new year is always a time to set new resolutions, goals and get a fresh start to the year. However, many wonder if that means you need to get a fresh new investment strategy for the year.
Our answer to that is not necessarily.
While it is easy to look at a market cycle from January 1 through December 31st, the economy, interest rates, inflation, etc. doesn’t automatically reset to a base line on January 1st and start the year fresh like many of us try to do. It’s a never-ending cycle of business that runs for several years and you should treat your strategy that exact same way.
This might lead to a question, then when should you change your investment strategy.
Our answer would be when something major happens in your life and your cash flow needs change.
Examples that we have seen in the last year by a few of our clients that has caused major changes have included:
- Retirement – the need to access funds from your investments to live on might change your risk profile and time horizon to use a greater portion of your savings.
- Uncertainty in your life – Sadly we had a few clients severely impacted by the LA fires. When you have this level of uncertainty it makes sense to take risk in your investment portfolio off the table and hold more cash until the dust settles.
- Major Medical event – much like uncertainty in your life, a major medical event could cause higher expenses, loss of income from working or both. In these cases, a rework of the investment strategy makes sense.
- Major Upcoming Expense - such as sending your children off to college. If you know the bill is coming due, it makes sense to make a change to add cash to the portfolio since you know you’ll need funds in the nearer term.
As you can see, major strategy changes are not necessarily market driven, they are life driven. Your investments and finances need to drive your life, and that’s when you need to make a change.
Why Did the Stock Market Do So Well? – By Michael Antonelli, PWM Market Strategist
2024 has been, by all measures, a spectacular year for the stock market. Hot on the heels of a strong 2023 (+26%), 2024 will likely return another 20%+ return. Back-to-back 20% years are rare (it’s only happened 8 times since the end of WW2) so you might wonder if that’s bearish for the following year. Well, according to history, it’s not. Of the 8 times we saw back-to-back 20% gains in the stock market, the very next year was positive 6 times. A 75% win rate with an average return of 12.5%. Now we know past performance is no guarantee of future results, but when the stock market is doing well, it tends to continue to do well. Which raises the question, “Why is the stock market doing so well?” So let’s dig into that.
The main driver of US stocks over the long run is and always will be corporate earnings. How much money are companies making and what are investors willing to pay for those profits? From 2020 to 2024, the US stock market is up roughly 99% and earnings account for 60% of that (dividends account for 15% and multiple growth for 24%). The primary reason stocks continue to do so well is that forward measures of earnings have been growing for years now. In January 2023 we (consensus) thought the S&P 500 would do $225 per share in earnings in the following 12 months. In January 2024, we thought it would be $243. Now, at the end of 2024, we think it will be $270. It’s just that simple.
Why are earnings growing? Because our economy is benefiting from numerous tailwinds: strong consumer spending bolstered by rock solid balance sheets, a housing market that remains stable even as demand wanes, government spending, a massive generation in its prime (Millennials), and technological themes such as AI and GLP drugs (weight loss).
You might have heard that “it’s only a few stocks driving the market higher” but that’s not true. Equal Weight S&P 500 is at a new all-time high (as are numerous equal weight sector measures) and so are the small-cap and mid-cap indices. It’s not just a few tech names, period.
As a result of multiple years of gains, the stock market has become somewhat expensive (even with earnings growth), so that’s something we will continue to monitor. Valuation is historically a terrible timing tool so there’s not much we can do with this information other than to acknowledge it. If you always sold the stock market when it was expensive, your long-term returns would be horrific.
We will have a new administration in the White House in 2025 and all eyes are on the potential impact of tariffs, immigration reform, and tax code changes. It’s too early to draw any conclusions because we don’t know what can actually happen versus what’s being floated. President-elect Trump does tend to measure his success via the stock market so we will be watching its reaction to his various proposals in real time (we saw it had ZERO reaction to the latest tariff talk in November).
What could derail the market? Unfortunately, there’s no great answer to that because risk, TRUE RISK, is something none of us can see. Think about the three biggest risks of the past 24 years: COVID, the Financial Crisis, and 9/11. No one saw any of those coming. Which is why building durable portfolios to survive the shocks is the key to long-term success.
The United States continues to be the premier destination for investors, our dollar remains the world’s reserve currency, and the economy is as vibrant and electric as ever. While we will have our ups and downs, and the stock market will occasionally have bouts of volatility (including bear markets), there is still no better place to grow wealth than in the greatest nation the world has ever seen.
https://www.bairdwealth.com/insights/market-insights/baird-market-strategy/2024/12/why-did-the-stock-market-do-so-well-in-2024/
If you are interested in hearing the Baird Wealth Strategies: “All That Matters in 2025” – check out the Baird Wealth Strategies page here:
https://www.bairdwealth.com/insights/wealth-strategies/webinar-all-that-matters-in-2025/
BVB Group Teammate Spotlight
Rachel Lazewski (pronounced La-ZES-key) has been our “chief operations officer” for the team since 2020. She is your primary point person and go to for everything operationally, opening accounts, Baird Online, money movements and paperwork. Her attention to details and keeping our Advisors in-line is the key to the team’s success.
She isn’t just busy at work, being married with two young kids keeps her busy on the home front, which is why our team fully supports a hybrid work from home policy.
If you ever have questions on operational needs, do not hesitate to reach out to Rachel.
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