Quarterly Investment Foundations First Quarter 2025

Mastering The Subject

Capitalizing on Uncertainty: The 2025 Investment Outlook

As we embark on 2025, the investment landscape presents both challenges and opportunities. At Grand Wealth Management, we are focused on managing this uncertainty in a way that allows our clients to achieve their long-term financial goals. Let’s break down the key uncertainties and opportunities shaping the year ahead and how we’re addressing them.

Uncertainties in 2025

Uncertainty is ever-present in investing, and this year is no different. As President Trump is set to enter office, we will soon see how his promised policies will impact the U.S. economy. Policies aimed at decreasing immigration and increasing tariffs may lead to slower economic growth and elevated inflation. Both factors could decrease corporate earnings and consumer spending.

Even though inflation has moderated compared to its peak in 2022, it may not reach the Federal Reserve’s target of 2% quickly. The Federal Reserve may maintain higher interest rates throughout 2025, potentially dampening bond and real estate investment returns.

In the U.S., technology stocks, particularly those benefiting from the artificial intelligence (AI) boom, are trading at elevated valuations. The Current valuation of the S&P 500 index, as measured in the price-to-earnings ratio, is 21.5 compared to the 30-year average of 16.9. Historically, high valuations can signal lower expected returns in the near term.

Despite these challenges, those who embrace uncertainty will be rewarded. If the outcome could be known, everyone would jump in and the reward for investing would be watered down.

Opportunities in 2025

Despite the uncertainties, there are also promising opportunities. President Trump’s administration has promised deregulation and lower taxes—both of which could foster economic growth and partially offset the challenges mentioned earlier.

The U.S. economy is on strong footing, and companies remain resilient. With low unemployment and easing wage pressures, inflation should continue to trend downward. Company earnings also remain robust, with 2024’s earnings per share exceeding the average between 2001 – 2023 by over 1%.

U.S. growth stocks are expensive, yet value stocks—those with lower price-to-earnings ratios—offer more attractive opportunities. Historically, value stocks have outperformed their growth counterparts over the long term. With growth stock valuations near the all-time highs reached in 2021, including more value stocks should increase expected return for investors.

Lastly, international markets present another compelling case for diversification. Valuations in these markets are much closer to their historical averages, meaning investors can purchase international company’s stocks at better prices than U.S. company’s stocks.

Our Approach for the Year Ahead

When faced with uncertainty, we focus on what we can control. Our approach for 2025 will include reviewing asset allocation targets, tactical rebalancing, and focusing on investments with attractive valuations.

We work with our clients to create diversified asset allocation targets that align with their financial goals and risk tolerance. This allows them to weather market fluctuations without making emotional decisions. If their situation changes or they reach a new stage of life, we are proactive to review their allocation to make sure it is still the right fit.

Rebalancing is the practice of “buying low and selling high.” For instance, we may rebalance portfolios from overvalued U.S. growth stocks into international or value stocks when market conditions indicate it is time to do so.

By using fund managers who emphasize value stocks, we aim to position portfolios for higher expected returns over the long run. Additionally, diversifying internationally helps mitigate risk and captures opportunities across global markets. Using valuation metrics as a guide, we will position our client’s portfolios to have higher expected returns in the years to come.

Despite the uncertainties of a new year, we believe in sticking to the fundamentals: maintaining a disciplined plan, rebalancing as needed, and focusing on investments with strong long-term potential. As always, our team is here to guide you through the complexities of investing and help you make informed decisions.

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_{Disclosure:
The opinions expressed are those of Grand Wealth Management. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Material presented has been derived from sources considered to be reliable, but accuracy and completeness cannot be guaranteed. Grand Wealth Management (“GWM) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about GWM’s investment advisory services can be found in its Form ADV Part 2 and/or Form CRS, which is available upon request.}