Unlocking Exponential Growth: Transform Your Financial Future Today

1. Rebalance your portfolio.

While periodically buying and selling holdings to bring your portfolio’s asset mix in line with your targets doesn’t usually enhance returns, rebalancing is critical for keeping a portfolio’s risk level in check. The most important thing is your overall mix of stocks and bonds, which will have the biggest impact on portfolio risk. Thanks to the equity market’s strong rally in 2024, most portfolios are probably heavy on stocks and light on bonds at this point. But it’s also worth checking up on allocations within each broad asset class. If it’s been a few years since you rebalanced your portfolio, you’ll probably find that you’re overweight on domestic stocks (which have outperformed in eight of the past 10 calendar years, including 2024) and light on international stocks. Similarly, most portfolios are probably light on value stocks and small-cap issues, which continued to lag large-cap growth stocks by a wide margin during most of 2024.

Bạn đang xem: Top 5 Portfolio Moves for 2025

2. Be wary of speculative excess.

Xem thêm : Year-ender 2024: Dynamic asset allocation funds deliver up to 20% return in 2024, Quant Dynamic Asset Allocation Fund lead

The markets have abundantly rewarded investors over the past couple of years, with 25%-plus returns in the equity market for two years straight. As a result, valuations (as measured by metrics such as price/earnings or the Shiller CAPE) are relatively steep compared with historical levels. And market enthusiasm has been even more extreme in a few pockets of the market, such as artificial intelligence, bitcoin, and leveraged single-stock exchange-traded funds, not to mention companies like MicroStrategy MSTR, which basically uses proceeds from issuing securities to buy bitcoin, which in turn pumps up prices of both bitcoin and its own shares, allowing it to buy more bitcoin to keep the seemingly unstoppable numbers going up. It’s entirely possible that the market’s biggest winners will continue to trend higher, but it’s worth remembering that most speculative bubbles eventually pop.

3. Avoid taking on too much risk in your fixed-income holdings.

Now that bond yields are significantly higher than they were a couple of years ago, the prospects for future fixed-income returns look decent. As of this writing, the 10-year Treasury yield stood at about 4.5%, up from as low as about 0.6% during the depths of the pandemic in 2020. However, I’m wary of betting too aggressively on bonds as total return generators. For one, the Fed will likely not be making aggressive interest-rate cuts in 2025 given a somewhat murky outlook for inflation. In addition, the yield curve remains relatively flat, meaning that investors who venture out into longer-duration bonds aren’t getting a lot of incremental yield. Similarly, lower-quality bonds may not offer generous enough yields to compensate for their additional credit risk. Bonds are mainly a risk control tool, so it makes sense to focus on high-quality bonds with short- to intermediate-term maturities.

4. Make sure your portfolio is protected against inflation.

Xem thêm : CompoSecure Announces Strategic Spin-Off of Resolute Holdings Management, Targets Asset Management Growth

The outlook for inflation is mixed at this point. It seemed to be moderating throughout most of 2024 but ticked up to 2.7% year over year as of the most recent report in November. It’s not clear at this point if that was a blip or if inflation will continue to be a problem. There are a few reasons for caution on the inflation front. Economic growth remains strong, and unemployment remains low. President-elect Donald Trump’s proposed tariffs may or may not be inflationary, but mass deportations would represent a supply shock to the labor force and likely put upward pressure on inflation. And hefty government spending in recent years has pushed up the federal debt to more than $36 trillion. If you have a time horizon of at least a decade or more, stocks are generally the best way to protect your portfolio against inflation. But if your time horizon is shorter, it makes sense to allocate a portion of your bond portfolio to Treasury Inflation-Protected Securities. As of this writing, real yields on 10-year TIPS are about 2.2%, which is relatively attractive compared with previous levels.

5. Consider adding a small position in healthcare stocks.

I’ve written before about why I personally avoid sector funds. On average, they carry higher costs than broadly diversified funds, and they can be difficult to use effectively. That’s because people tend to buy sector funds after they’ve already generated attractive returns and sell them after downturns. Investors can mitigate some of these risks by taking a more contrarian approach—focusing on sectors that have been out of favor and now trade at more attractive valuations. The healthcare sector meets both of those criteria. Healthcare stocks such as biotech, pharmaceuticals, and medical-device firms have lagged the overall market by roughly 6 percentage points per year over the past three- and five-year periods. On average, healthcare stocks now trade at a 5% discount to our analysts’ estimates of their fair value. Investing through a diversified healthcare fund with low expenses, such as Fidelity Select Health Care FSPHX or Vanguard Health Care VGHCX, is the safest approach.