The year 2025 is full of uncertainties, but with the right strategy, there can also be returns.

Author: Suzanne Woolley, Bloomberg Businessweek

Translator: Luffy, Foresight News

This year is full of uncertainties. The artificial intelligence narrative that once drove the US stock market is now being questioned; how the second Trump administration will affect the financial situation of ordinary Americans, and whether we will see inflation rise again, putting pressure on stocks and bonds, is still largely undecided. To help guide people through this uncertain period, we consulted investment experts on some of the major issues investors face this year. Although this year is full of risks, with the right strategy, there may also be returns.

1. How likely is it that the S&P 500 index will see a significant decline this year? How should I prepare?

Michael Cembalest, Head of Market and Investment Strategy at JPMorgan Asset Management, says the S&P 500 index has risen more than 20% annually for the past two years, a scenario that has only occurred 10 times since 1871. Cembalest expects the stock market to rise by the end of the year, but he also says there could be a decline of up to 15%, which he notes is not uncommon. In the past 100 years, the S&P 500 index has fallen 10% or more in 60 years.

Given the potential for significant market volatility, a better question is: when do you need this money? After each decline, new highs will come, so if you can cash out in a few years, you won't run into problems. Also, carefully examine your asset allocation. Holding just the S&P 500 index is not enough, as the top 10 stocks (mostly tech stocks) now account for about two-fifths of the index's market value, compared to about a quarter in 2000.

Ben Inker, Co-Head of Asset Allocation at GMO, says one diversified approach is to buy an equal-weighted ETF that tracks the index, where each company accounts for about 0.2% of the value. He says, "In the long run, this is a good way to avoid getting too caught up in the current investment fad."

2. Does the traditional 60/40 investment portfolio still make sense?

Financial planners have long recommended a 60% stock, 40% bond portfolio, which has provided decent returns over the past few decades with much lower risk than holding stocks alone. However, the logic behind this portfolio (that bonds will rise when stocks fall, and vice versa) completely broke down in 2022. With soaring inflation and the Fed aggressively raising rates, both stocks and bonds have suffered. Recently, US stocks and bonds have often moved in sync.

More and more investment managers are suggesting allocating a portion of the 60/40 portfolio to so-called alternative assets - private securities that don't move in lockstep with public market assets. Adding these assets may introduce new risks, but could also boost long-term returns. Sinead Colton Grant, Chief Investment Officer at BNY Mellon Wealth Management, says companies are going public later, meaning public market investors are missing out on the higher returns in the early stages. "If you don't have access to private equity or venture capital, you're missing out on that opportunity." She believes private securities should make up about a quarter of the investment portfolio to replicate the performance of the 60/40 portfolio from the late 1990s.

Not everyone agrees with this view. Jason Kephart, Director of Multi-Asset Ratings at Morningstar, says adding private assets to a 60/40 portfolio "adds complexity and fees, and there are also some questions about the valuation methodology." He says the strength of the 60/40 strategy is its simplicity, making "it easier for investors to understand and stick with the portfolio over the long term."

3. If I'm risk-averse, is US Treasuries worth investing in? Will the bond vigilantes return?

Bond vigilantes are large investors who demand higher yields on government bonds to express their displeasure with excessive government spending. While the details of the new administration's spending plans are still unclear, there are concerns that the US budget deficit could worsen in the coming years, which could mean higher Treasury yields are on the way.

The 10-year Treasury yield is currently around 4.6%, near an 18-year high. Should investors seize this opportunity? Leslie Falconio, Head of Taxable Fixed Income Strategies at UBS Global Wealth Management, says the firm had been favoring locking in 5-year Treasury yields until recently. But she believes that with UBS forecasting economic growth to remain above trend but slow, and inflation to decline, 10-year Treasuries around 4.8% to 5% would be a good buying opportunity. As for 30-year Treasuries, she says, "Given the current volatility and policy uncertainty, we don't think it's wise to extend the investment horizon to 30 years at this yield level, as the risk-reward is not proportionate."

Of course, for those with high-yield savings accounts or 1-year CDs, a 4.6% yield may not seem particularly high, as these products can also offer similar returns. But savings account rates can change at any time, and for CDs, you can't be sure you'll get the same rate when you renew in a year.

4. How can I protect my assets from rising prices?

President Trump promised to "defeat inflation," but at the same time, he is pushing for higher tariffs and tax cuts, which could exacerbate inflation. Morningstar investment strategist Amy Arnott says for investors in their 20s and 30s, rising prices may not be the main concern, as wages should keep up with inflation over time, and stock values generally grow faster than inflation. Arnott believes "stocks are one of the best inflation hedges in the long run."

Those hoping to retire in the next 10 years may want to consider dedicated inflation-hedging tools like commodities. Arnott says a diversified commodities fund may include oil, natural gas, copper, gold, silver, wheat, and soybeans. Since few such funds have performed well recently, Arnott suggests comparing the risk-adjusted returns of these investments, rather than focusing on absolute performance.

For retirees or those planning to retire soon (who can't offset inflation through pay raises), Arnott recommends buying US Treasury Inflation-Protected Securities (TIPS) linked to the Consumer Price Index. She suggests buying 5-year and 10-year TIPS, rather than 30-year, as the latter poses too much risk for those not planning to hold to maturity.

5. Should I add cryptocurrencies to my portfolio?

With a president who has launched a Memecoin and the Treasury Secretary Scott Bessent disclosing (and selling) his cryptocurrency fund holdings, cryptocurrencies are looking increasingly mainstream. Investors can now buy crypto ETFs, with tens of billions of dollars flowing into the iShares Bitcoin Trust (IBIT), which is less than a year old, helping drive Bitcoin's price up nearly 60% in the six weeks after the election.

However, the long-term prospects for cryptocurrencies remain highly uncertain; for example, Bitcoin has recently pulled back. Therefore, some advisors suggest investors persistent on adding crypto should limit the allocation to under 5% of their portfolio; for those nearing retirement, the percentage should be even lower. Matt Maley, Chief Market Strategist at Miller Tabak + Co., says younger investors can have a slightly higher allocation to crypto, but only if they balance the risk by investing "in companies with good cash flow and stability." "You wouldn't want 10% in Bitcoin and 90% in tech stocks."

6. Has the artificial intelligence bubble burst?

The two-year bull market in artificial intelligence stocks suffered a major setback in January this year, as the chatbot developed by startup DeepSeek forced investors to rethink some basic assumptions. DeepSeek said it was unable to obtain the most advanced semiconductors and instead used lower-cost chips to quickly develop a model that, by some metrics, seemed to rival the models of U.S. AI leaders. On January 27, Nvidia, the company leading advanced AI chips, saw its stock price plummet 17%, wiping $589 billion off its market value, the largest single-day drop in U.S. stock market history. The possibility that AI may not require expensive chips has raised questions about the valuations of Nvidia and U.S. AI giants. Analysts are closely studying DeepSeek's model, trying to verify its claims and assess whether the U.S. AI frenzy has peaked. It is certain that China's progress in this technology has been faster than many had imagined. Some investment managers see a glimmer of hope in DeepSeek, as if more companies and consumers can afford this technology, AI could have a greater impact. However, the high valuations of leading tech stocks have made some portfolio managers cautious about putting new money into the sector, instead favoring undervalued areas of the U.S. market, such as healthcare and consumer goods, or seeking better opportunities abroad.

Climate change could have a significant impact on my retirement plan. For most retirees, home equity is their most valuable asset, especially if they have lived in their homes for decades and paid off their mortgages. Fully owning one's home can provide security for housing costs and avoid the uncertainty of future rent increases. But as the number of extreme weather events increases, the cost of home insurance is constantly rising, undermining this logic. According to a study of more than 47 million households, home insurance premiums rose an inflation-adjusted 13% on average between 2020 and 2023. But many major insurers are no longer offering new home insurance policies in high-risk areas, or only providing limited coverage - especially in sunny coastal communities where many Americans spend their retirement years. For example, in 2021, about 13% of voluntary home and fire insurance policies in California were not renewed. Clearly, more and more retirees feel they have no choice but to go without insurance due to lack of cash. According to data from the Insurance Information Institute, the proportion of Americans without home insurance has more than doubled since 2019, reaching 12%. "This puts retirees in a bind," said Daryl Fairweather, chief economist at real estate brokerage Redfin, "either they have to bear the high and potentially rapidly rising monthly premiums, or risk losing their homes."

In the near term, housing is unlikely to become more affordable. 30-year fixed mortgage rates are currently around 7%, pricing many buyers out of the loan market. And existing homeowners holding mortgages at 3% or 4% have little incentive to sell, as it would mean getting a new mortgage at today's rates. Moody's Analytics chief economist Mark Zandi says mortgage rates are unlikely to fall back to around 6% anytime soon, as the Trump administration is pursuing policies that could lead to inflation. Vacancy rates for lower-priced homes (under $400,000) are around 1%, near historic lows. This suggests that both home sales and rental markets will continue to see high prices. Don't expect new construction to meet demand, as immigrants (those facing deportation risks under the Trump administration) make up nearly a third of construction workers, about half of whom are undocumented. Zandi says, "Housing will remain unaffordable this year and the foreseeable future."