This image shows year-to-date 2025 returns as of 3/31/2025. U.S. large-cap stocks are down 4.27%. U.S. small cap stocks are down 9.48%. International developed stocks are up 5.36%. Emerging markets stocks are up 3.01%. U.S. short-term bonds are up 1.63%. U.S. aggregate bonds are up 2.78%. U.S. municipal bonds are down 0.22%. Global bonds are up 2.64%.
More eggs in more baskets — sage advice unless your basket happens to be a Costco shopping cart! But more on that later.
Large U.S. stocks just finished their worst quarter since 2022 as a whipsaw rollout of tariffs and other geopolitical concerns loomed. Down less than 5% overall, this performance is still a far cry from two consecutive years of double-digit returns among historically low volatility. The last two years are much more the long-term anomaly than what we’ve witnessed so far in 2025. Big U.S. tech stocks that have powered markets higher over the prior decade have pulled back recently. In addition, the other major sectors that make up the S&P 500, such as healthcare, consumer staples and financials, have remained positive, which has limited overall declines. This is significant, as these sectors are closely linked to the overall health of the economy, and their continued strength is a positive. Meanwhile, international markets rose, with European stocks hitting fresh all-time highs. You should never stop at the headlines though. This new all-time high was the first for Europe since the year 2000! On the other hand, domestic stocks have seen more than 400 all-time highs over the same period. This divergence in returns is a healthy reminder of why portfolio diversification matters.
European stocks serve a place in a well-diversified portfolio, and they always have — even during this sustained period of underperformance. But domestic stocks deserve a much larger place in the same portfolio. Not because of some preference or false prediction, thinking we know which will do better, but rather because of the relative weightings of each that make up the globally available stock universe. The domestic stock market is a larger percentage of the global markets than international stocks, and both should be allocated accordingly. You should have more eggs in more baskets, because you don’t know which ones will stink (even if that stench may last an entire quarter of a century like it did with Europe). This new all-time high for Europe is a very healthy sign for markets.
This chart shows the S&P 500 Index versus the Euro Stoxx 50 Index between January 1, 2000 and February 13, 2025. The Euro Stoxx 50 had its first all-time high since March 2000 in early 2025. In that same time period, the S&P 500 had has 414 new all-time highs.
Going back to eggs, they give us the perfect protein-rich example of why you must tune out the noise, as the fury of sound coming from the noise often only comes out of one of the speakers. Case in point: egg prices grabbed headlines when they skyrocketed recently, but they’ve fallen by more than 60% since mid-March — and it’s been difficult to find headlines highlighting this precipitous drop. It doesn’t get clicks to discuss things trending positively, so the media amplifies one side of the noise while nearly completely muting out the other speaker. For those of us who remember having to wade through stereo instructions to get surround sound set up, a balanced approach is absolutely necessary to get it right.[JA1]
The more dangerous noise right now isn’t about eggs but rather politics. Raw eggs can make you sick, but raw emotional financial responses to political noise can be ruinous. The extra emotional charge of politics makes their inclusion in portfolio decision-making the ultimate toxic ingredient. As hard as it can be among the ever-spinning tariff and geo-political headlines, the only prudent slogan remains “Keep Calm and Carry On.” We find a way forward, and so do the markets. Keep calm and carry on, especially when politics turn up the emotional heat. Politically driven or not, downturns happen, and they happen a lot. Over the long run, any given year typically sees a 14% decline at some point throughout the year — and we haven’t gotten close to that yet. This pullback was the 30th since the last major recession in 2008, and every single one of them felt like the end of the world in that moment. Every single one of them also had well-manicured pundits explaining why that was the time to cash out, and they were wrong 100% of the time. You’ll note that previous trade wars with the current president are a part of this list, and markets found a way forward. Could this time be different, with the markets heading further south? Of course. Does the historical data say there’s a 100% chance the markets will recover to all-time highs? Also of course. Embrace downturns for the inevitable and healthy element of markets that they are.
This table shows S&P 500 corrections of greater than 5% since the March 2009 low and the supposed “reason” for those corrections (such as disease, interest rates, Fed tapering fears, inflation, etc.).
Sticking to a well-crafted and comprehensive plan always wins out over the headlines. Continuing to regularly contribute to a 401k, or any retirement plan, allows you to buy the dips and be rewarded over the long term. Volatility allows taxable accounts to be rebalanced and accrues tax losses to be used within or outside a portfolio to drive better after-tax outcomes.
It’s not too late to make some objectively prudent choices before the tax filing deadline. Should you be contributing to a 401k in traditional or Roth form? Should you be converting traditional IRA assets to a Roth based on your unique tax circumstances? These are only two examples of the numerous investment decisions that are 100% in your control to optimize regardless of what the headlines are howling. Like with eggs, prices go up and prices go down — but over the long run they’ll go up, and that’s completely out of your control. What is in your control is how many eggs you should be consuming based on your health goals, your cholesterol level and other dynamics completely customized to you.
Last week, the blue and red color-slanted gossip echo chambers (also known as 24-hour news networks) screamed how consumer confidence had plunged to a 12-year low. What they failed to mention was that over those dozen years, market returns were above 300%!1
This chart shows the S&P 500 Total Return Index versus the Consumer Expectations Index from March 2013 through March 26, 2025. The Conference Board Consumer Expectations Index is lowest in March 2013 and March 2025 (with elevated years between December 2016 and December 2021). The S&P 500 has gained 354% over that same twelve years from March 2013 through March 2025.
Unfortunately, these headlines drive investors to make the exact wrong decisions at the exact wrong times. Allocations to cash are increasing, which is nothing more than a gateway to poor performance. It’s great that cash stays positive 100% of the time, but it’s not so great to know it has equally perfect odds of underperforming the market over the long run.
This table examines portfolios consisting of 100% cash, 100% bonds, 100% stocks, and all stock/bond splits in 10% increments (90%/10%, 80%/20%, etc.). It then shows the annualized total return, real annualized total return 1928-2024 and the % positive annual total returns for each. It also shows the annualized volatility 1928-2024 and the max drawdown (annual total returns) for each. Overall, return and volatility both climb consistently with more stocks in your portfolio.
The larger your exposure to stocks, the larger your returns will be over the long term. It really is that straightforward. Please note it says “stocks” and not “stock” purposefully. Over the long run, 96% of individual stocks do no better than Treasury bills, but over that same period, the reward for being an owner (with stocks) versus a lender (with bonds) is extraordinary.2
This charts shows the average growth of a $100,000 portfolio over time (1928-2024, total returns), comparing cash (3-month T-bills) and stocks (the S&P 500) over set time periods (1, 2, 3, 5, 7, 10, 15, 20, 25 and 30 years). As the time periods grow longer, there is exponentially more growth for the stocks than the cash, with cash at $392,311 and stocks at $2,512,686 for a 30-year period.
While no one likes seeing the value of their hard-earned dollars decline, it’s the mandatory price of admission for better long-term returns. Tune out the noise and imprudent impulses that often drive drastic changes to a portfolio. Action is great, but impulses are nearly always wrong when it comes to markets. Any actions should be focused on your particular needs and financial circumstances. Smart tax considerations, rebalancing and making sure you maintain a well-diversified balance should be the driving forces behind any adjustments.
Mild volatility like this (remember that markets aren’t even down as low as they typically dip each year) is a great time to undertake an honest self-assessment of your ability to effectively handle inevitable volatility. Don’t make the exact wrong decision at the exact wrong time. Diet isn’t just what you eat, it’s what you watch, what you read, whom you follow, whom you spend time with and how you respond that keeps nest eggs — and your sanity — from cracking.
