Diversification is Paying Off
The first quarter of 2025 has underscored the value of maintaining a well-diversified portfolio. Despite weakness in the US markets, international stocks, bonds and gold provided positive gains and helped buffer portfolio volatility. While risks persist around inflation, interest rates, tariff headlines and a likely economic slowdown, we believe client portfolios are well positioning to withstand near-term uncertainty.
The narrative shifted rapidly in early 2025, with a rotation out of US Large Cap growth stocks and into more undervalued asset classes. International markets have benefitted from a weaker dollar and more accommodative monetary policy stance. Fixed income has provided positive returns, with investment-grade bonds offering compelling yields amid a shifting interest rate environment. Gold has also seen a notable increase, driven by a weaker dollar, continued central bank purchases, and geopolitical uncertainties, reinforcing its role as a “safe haven” asset class.
As the government attempts to normalize budget deficits, the economy will likely face headwinds. Much of the GDP growth from the past 10+ years has been spurred from government spending, which allowed for positive growth by borrowing from the future. This was not sustainable, as seen by the >$1 trillion interest expense on our debt. If the government is successful in achieving its goal, it would lay the foundation for sustainable economic growth going foward.
Asset Class Performance and Historical Returns
The Asset Class Performance chart below shows the year-to-year changes in the performance among different asset classes. As the chart shows, returns will vary from year to year but having a balanced portfolio provides a smoother return path with lower volatility and more manageable drawdowns. We have seen this firsthand in our portfolios YTD.
Asset Class Performance
Total returns and annual averages over the period shown
The Balanced Portfolio is a 60/40 historical index calculation consisting of 40% U.S. Large Cap, 5% Small Cap, 10% International Developed Equities, 5% Emerging Market Equities, 35% U.S. Bonds, and 5% Commodities.
Latest data point is April 11, 2025
Source: Clearnomics, LSEG,
©2025 Clearnomics
Looking back longer term, the recent stock market decline is actually quite common. As illustrated in the chart below, between 2005 to 2024, the US stock market on averaged experienced a correction of roughly 15% at some point during the year. However, today’s market environment is shaped by some unique factors that may not follow historical patterns. That’s why diversification remains more critical than ever. As we move through 2025, our team is actively monitoring the markets and making thoughtful, strategic adjustments to portfolios, with the goal of helping clients stay on course toward their long-term financial objectives.
Year-By-Year Returns, with Steepest Decline Within Each Year
Russell 3000 Index, 2005-2024
Source: Dimensional Fund Advisors. (2025, March). Do downturns lead to down years? Retrieved April 16, 2025
When we take a broader view of the domestic stock market as shown by this chart, we find that despite these corrections, 17 of the last 20 years finished with positive gains. Short-term pullbacks and their related headlines are an expected part of achieving positive longer-term returns in equities.
By allocating across a broad range of global asset classes, we help navigate periods of market volatility more smoothly, while also positioning portfolios for sustained growth and income over the long term. In 2024, our disciplined approach to strategic rebalancing, which included a value tilt, reduced exposure to large-cap technology, extended bond duration, and gold, has contributed significantly to portfolio outperformance relative to the US stock market so far this year.
Confidence Through Clarity: The Power of Financial Planning
In uncertain times, updating your financial plan can bring clarity and peace of mind. Many clients have found that a thoughtful, goals-based strategy helps them stay grounded during market volatility and make more confident decisions. Our team offers this planning service at no cost, and it’s available anytime you’re ready. If you haven’t created or refreshed your plan recently, now is a great time to put a clear, long-term strategy in place. Feel free to contact our wealth advisory team to start or update your financial plan. We are always here to help and we look forward to hearing from you.
