Markets Bounce Back but Uncertainty Remains
As we approach the midpoint of 2025, the stock market has shown signs of recovery after a turbulent start to the year. Earlier, the market faced intense volatility following the introduction of elevated tariffs, which pushed the S&P 500 down more than 20% from its peak. However, optimism about trade talks and strong first-quarter earnings have helped the S&P 500 rebound to within 2% of its all-time high.
Despite this recovery, investors shouldn't get too comfortable. The market’s future path remains uncertain due to ongoing trade tensions, underwhelming economic data, and potential delays in Federal Reserve rate cuts.
Strategies to Strengthen Your Portfolio in 2025
1. Review and Rebalance Asset Allocation
Strong markets can mask portfolio imbalances. Last year, U.S. large-cap tech stocks led the gains. Without periodic rebalancing, your portfolio might become overly concentrated in these areas, straying from your original risk tolerance and goals.
Notably, international markets have outperformed recently. For example, the Vanguard FTSE All-World ex-US ETF (VEU) has delivered a robust 16% return so far this year, compared to just over 2% for the S&P 500. This highlights the value of adding or maintaining exposure overseas.
Experts recommend aiming for a balanced global stock allocation around 60% domestic and 40% international. International investments often offer exposure to sectors like financials and healthcare, which are less represented in the U.S. market.
2. Reassess Your Risk and Retirement Goals
Market dips provide an ideal chance to reevaluate your risk appetite. Investors approaching retirement, in particular, should consider gradually shifting to safer assets to protect gains and capitalize on currently attractive fixed-income yields.
Adding higher-yielding bonds can enhance portfolio stability, especially with yields no longer near historic lows. For those saving for retirement in the next five to ten years, a mix of conservative holdings plus growth-oriented investments through dollar-cost averaging—investing fixed amounts regularly—can help navigate market unpredictability.
3. Explore Tax-Loss Harvesting Opportunities
If you hold taxable brokerage accounts, now might be the time to consider tax-loss harvesting. This strategy involves selling investments that have declined in value to offset gains elsewhere, reducing your taxable income.
However, be cautious to avoid the wash-sale rule, which disallows claiming losses if substantially identical securities are repurchased within 30 days. Sectors like energy, healthcare, and consumer discretionary have lagged this year and could present fruitful opportunities for harvesting losses.
Stay Proactive Amid Market Suspense
With markets hanging in the balance, actively managing your portfolio through diversification, risk reassessment, and tax strategies can help you navigate the lingering uncertainties of 2025. Avoid simply waiting for the recovery to unfold—take deliberate steps now to build resilience and align your investments with your financial goals.
