Investment avenues in 2025

Investment Analysis Clubs Macro Economic Trends and Risks
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I have been investing in growth stocks for over a decade (value investing before that). This is the first time I’ve changed my strategy significantly and I’d like to know what other fools are thinking.

Here are the macro trends I think are going to govern the markets in the coming years:

  • increased market volatility caused by the erratic nature of the current executive
  • increased inflation caused by trade wars
  • reduced revenue growths in some sectors caused by decreased trust in US companies that provide critical infrastructure and services (defense, cybersecurity, internet services)
  • possible increase in unemployment could counteract some of the inflation but also reduce demand for goods and services

I think the above effects are already happening. There are further possible but less likely risks:

  • serious government disruption of US stock markets (i.e. Elon dismantling the SEC ) could cause a massive market crash
  • DOGE and DoD gutting the US cybersecurity force could lead to massive attacks on all US digital infrastructure ( including payment systems, energy infrastructure and government functions)
  • it’s possible that the executive will stop the madness and will return to the first term type of policies

Based on the above trends and risks I have reallocated my investments in the following way:

  • 40% US stocks (down from 90%) that I own and think are least affected by the risks (WM, AXON, NEXT, IOT) - for the case that the situation stabilizes
  • 10% international stocks (MELI, AZN, HLMA) to cover changing preferences away from US companies
  • 5% puts on major US indexes because I do believe markets will fall further (this is up from 2% I had 3 weeks ago)
  • 5% precious metals
  • 4% commodities index swaps to cover inflation
  • 2% volatility index swaps
  • 34% cash (unsure what to do with it, waiting for the situation to evolve).

So essentially I’m going from investing in the future (growth) to betting on market downturn, inflation and misery.

What are your all’s strategies?

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2

@stenlis I gave you a rec for your excellent post.

I agree with you on all points of your analysis. Since I’m more risk-averse than you are I have shifted out of stocks into a ladder of bonds which I plan to hold to maturity. I think that inflation will be worse than predicted so I am overweighted in inflation - adjusted bonds (I-Bonds and TIPS). The gold I bought in years past is now roughly 2% of my assets but I consider it insurance rather than an investment.

Growth is nice but 2025 reminds me of 2000 – a tech bubble vulnerable to collapse. I don’t need growth to maintain my lifestyle for the foreseeable future so I’m not taking the risk in stocks. I’m not sure what to do with the cash released by the 2025 rung of my bond ladder since bonds don’t look that great at this time (though still much better than the recent past). More investors are becoming risk-averse and crowding this trade.

If and when the bubble pops I will buy stocks again. Based on the 2000 experience it takes about 1.5 to 2 years to reach bottom.

Wendy

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I read some discussion on shrewdom from Mungofitch about the S&P 500 equal weight likely to outperform the cap weighted. But these are very dangerous times. I have a CD ladder as insurance. And I’m looking for my rabbit’s foot. This may be a long winter.

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First, I’m retired. I have most of my loot in utilities and consumer non-durables. Everything pays a dividend. Divi and SS income per year are about double what I spend. I don’t have much of anything in bonds or bank CDs. Yes, reliable return of capital is nice, but, in a high inflation environment (I’m old enough to remember the 70s), I suspect stocks are the only way to keep pace as the profits supporting the stock prices keep pace with inflation.

Steve

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Like you I was mostly a value guy for years, until around 2016 or so. In 2018 I found SaaS via the Saul board and kept that strategy until around 2021 (wishing I had got out sooner!). 2022 was a brutal year. I recovered very early 2024. Currently I am down about 1.5% for the year, which is not bad at all.

Today I am very conservative, at a 52/48 stock/bond split in very general terms, so more conservative than a balanced portfolio. International equity exposure is 16%. And the US equity portion has a very low tech exposure.

Cash - 37.2% money markets, yes, extreme
VGK - 12.5% Europe stock
VFMV - 11.4% low volatility US stocks
VBIAX - 11.1% balanced fund
QUAL - 6.4% high quality equity ETF
Treasury - 6.0% directly owned 6-month bills
VXUS - 3.7% stocks outside of US
SPXT - 2.6% S&P 500 minus tech names
GLD/SLV - 4.6%
The rest in COST, BRK, GM

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My strategy hasn’t changed since 1989 – Long-Term Buy & Hold with a focus on Tech & Drugs. After Black Monday in 1987 (22.6% drop in one day), I stayed out of the market for 2 years. I’m at least 25% poorer today as a result.

My current asset allocation is 95% stock, 5% cash and fixed income – and I’m still waiting another 10 months to start Social Security at age 70.

Over the long term, “stock market crashes” are lost in the round off. In the 30+ years since I retired in 1994, the S&P 500 has grown about 20-fold (with dividends reinvested). Note, that’s a 2000% return after 50%+ declines in 2000 and 2008.

It’s not a popular strategy, just lazy, successful and profitable.

intercst

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7

Growth beats value but with much higher volatility. Over the past few years I have been shifting from growth to income via covered calls which has worked out quite well. This current capitulation threw a monkey wrench in the machinery. I’m reevaluating the covered call strategy I was using. I’m in the process of adding a new selector to my Covered Call Selector web code.

With options volatility is your friend once you learn how to deal with it. From mid December to mid February I collected about 15% in cash but, of course, the underlying stocks cratered which means the options expire worthless so one can keep selling calls but the selection strategy changes to calls more out of the money which is the feature I’m adding to my web-app. The idea is to offset the capital loss with cash gain

There is also a change in money management. During the uptimes I was using the income to cover expenses and not touching the reserves. Now i’m using the reserve while accumulating cash in the portfolio, the idea being to have cash when the bottom arrives.

The Captain

PS: while updating the php code I discovered that I had been writing some really poor checkbox code for a long time. One never stops learning. :wink:

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8

I’m not changing strategies, but I am lowering expectations. US government policy is to permanently lower GDP growth, hence we should expect accordingly lower stock market returns in the future.

So in, retirement in may be prudent to re-examine assumptions about the 4% rule.

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Thanks @Stenlis for kicking this now superb thread into high gear, and @Wendy for her additional urging words and wisdom, and all the rest of the loyal courtiers joining in. I am sharing it with some of my godchildren.

Long past I invested both fadishly/stupidly (reading this board killed that mode of operation just in time) and also in carefully researched stuff where I had personal knowledge and expertise:

information communication gear and algortithms,
anti-viral R&D,
robotic medical equipment

and did quite well with those but mostly got absurdly nervous and sold too soon.

I realized that I lack the right psychology for most securities investment. Sigh. I now have my husband manage the 35% or so we hold mostly in broad indexes, and we both agreed to exit those a year ago because of uncertainties brought on by USA and world wide political disfunction.

In 2005 I shifted my main investment attention to much more “dirty hands investment” on both bare land and housing in paths of development favored by rich people. I love it, whether scoping out locations, the best devlopers and contractors in those locations, or planning and often hands on remodeling/ rebuilding of existing structures. With regard to dwelling places rich people are remarkably simple minded, usually acting in herds, and so mostly precictable. San Miguel de Allende and the Oaxaca coast in Mexico and the Balearic Islands of Spain are my main zones of investment, places where husband’s and my own fluency in Spanish give me an extra edge.

I am very gladly out of the USA property markets now (I was heavily and happily invested from 1980 through 2005), and am now strongly focused on Mexico and Spain, both of which had done very well before the current madnesses in the world, and now are doing even better as craziness and uncertainty increases, and the rich (including oligarchs and other crooks) seek safe fun places….

As the wicked witch of the West cried out in her last moments, “What a world what a world what a world….”

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Avenues? You want avenues? Looks like everybody else is heading for the off ramp.

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11

DO NOT sell your stocks. DON’T panic.

The market is going to snap back and soar quite a bit. War is going to end, budget is going to be balanced, inflation will be tamed, interest rates will fall rapidly and AI/Automation will unleash greater productivity than the internet.

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12

When :red_question_mark:

The Captain

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Yeah, and may I venture another pregnant question:
Why :red_question_mark:

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After the Second ******'s Great Recession/Depression. He still has over 1-million conservative voters to kill before the next election, so give him the diseases to spread, cause massive infections, and the fake cures that help kill his supporters more quickly.

PLAGUE !!!

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By summer markets will make newer highs.

Ending the war in Ukraine / Russia is CRITICAL.

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In which millennium? Cause it sure ain’t in this one.

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There is only one assumption. That the 30-year period is not worse than the one beginning 1928/29 (“The Great Depression”) or the one beginning 1966/67 (“The Great Stagflation”). Sounds like you are expecting the next 30-year period to be worse than those! How much worse do you think it’ll be?

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There was a long period of time where the London Stock Exchange was superior to the US stock market. So now the worst case scenario is like that: Trump/Musk do something really stupid like dismantling the financial market safety and trust mechanisms, it blows right in their face and capital will move on to the next best place. US stock markets will become the inferior option for the next 100 years.

Is it a likely scenario? No. But it’s possible enough to make me panic. Well, not just me, we can see what the market is doing at the moment.

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For years, bubblevision was whining about “burdensome”, “intrusive”, regulations in the US. According to bubblevision’s screed, regulations threatened NYC’s position in the financial world, because capital would flow to other markets, where sketchier practices were allowed, because sketchier practices yield higher profits.

Steve

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I had been assuming the future would probably be a bit better than the worst cases of the past for a number of reasons (I have some built in safe guards in the event that’s not the case), but I think the potential for it to be not only worse, but quite a bit worse is on the horizon.

The Great Depression was primarily caused by widespread banking failures, which in turn were caused by banks speculating in the stock market. This type of failure is no longer possible today, due to formation of the SEC and banking reform. Another factor was that the Federal Reserve failed to reduce interest rates in a timely fashion (in part because they were worried about banks speculating in the stock market). And of course the Smoot-Hawley tariffs did not cause the Great Depression, but it certainly exacerbated it.

From, I’d guess about 1850 onwards, each economic depression resulted in regulatory reform, which that type of recession less likely in the future. We saw in the GFC loosening the banking rules just bit wound up blowing the doors off the whole thing, and of course the rules had to be tightened up again.

Today, nearly every economic reform since 1929 (and some from well before that) are either being removed or are proposed to be removed.

The is SEC is already the process of being neutered. Project 2025 has a long list of ways it wants to go back to 1929-style securities regulation by eliminating consumer protections. Before you can say “conspiracy theory” Project 2025 author Paul Atkins is the nominee for SEC chairman. So there is a good chance our era of (relatively) transparent and regulated markets will go away. Of course, they want to make crypto easier to speculate on, and even use the government itself to speculate on crypto. I don’t think that ends well. And there are a number of P2025 authors and staffers appointed to high level government positions in the current administration. I think it is prudent to take them at their word and assume they will try to accomplish what they say they will.

You can go down the list. P2025 proposes returning to the free banking era, when anyone could open a bank. This time period was characterized by lurching from economic crisis to economic crisis. GDP growth overall was very modest during this era, driven mostly by immigration. We don’t really have stock market data from this era, but certainly if economic growth is lower, stock returns will be lower as well.

P2025 intends to hobble the Federal Reserve which will make responding to the next financial crisis more difficult. The CFFB (created after the GFC) has already been neutered, so the types of financial malfeasance that lead to the GFC will be easier to commit.

And of course we have tariffs in full swing right now, which all credible economists agree will damage the US economy.

So I don’t know if the P2025 staffers will get their way and return the US to a 1850s-style banking and regulatory environment. But they are in positions of power right now, and I believe it is prudent to take them at their word.

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