Investment Themes for 2025: What Investors Need to Know

by planwisely

By Erik Garcia, CFP®, BFA™, ChFC® & Xavier Angel, CFP®, ChFC®, CLTC

It is rare for the financial markets to have experienced two consecutive years 20%+ growth. But with inflation remaining sticky, economic uncertainties looming, and artificial intelligence (AI) reshaping industries, what should investors expect in 2025?

In this blog, we break down the insights from my recent podcast conversation with Phil Blancato, Chief Market Officer of Osaic, covering key investment trends, risks, and strategies for the year ahead.

1. 2024 in Review: A Year of Surprises

Despite widespread expectations of economic slowdown, 2024 turned out to be another stellar year for the markets. However, inflation’s resilience and unexpected monetary policy shifts left many scratching their heads.

Key Market Surprises from 2024:

The “Magnificent Seven” Dominance – Seven tech giants (Apple, Microsoft, NVIDIA, Amazon, Meta, Tesla, and Google) continued to drive the market, accounting for a significant portion of the S&P 500’s returns.
Sticky Inflation – While inflation declined from its 2022 peak, it remained higher than expected, leading the Federal Reserve to hold back on aggressive rate cuts.
Bond Market Disappointment – Many anticipated strong bond returns, but long-duration bonds underperformed due to unexpected rate fluctuations.

2. What to Expect in 2025: A Return to “Normal”

Phil believes that 2025 will bring a return to historical market norms, with more moderate stock market returns and increased volatility. Investors need to adjust expectations after two years of extraordinary gains.

Themes to Watch in 2025:

Increased Market Volatility – It is typical under normal market conditions to experience several 5% temporary declines per year and maybe one decline of 10% or more. Expect heightened fluctuations due to economic and political uncertainty.

Moderate Inflation & Interest Rate Cuts – Inflation is expected to settle around 3% (higher than the Fed’s 2% target), potentially leading to gradual interest rate cuts.

AI’s Continued Expansion – AI will remain a major driver of economic growth, but it’s essential to consider investments beyond just the big tech giants.

3. The Magnificent Seven: Still Too Dominant?

A story to watch for 2025 is whether the “Magnificent Seven” stocks can continue their dominance. These companies have carried the market for the last two years, but their valuations are stretched.

Things to Keep in Mind:

The average price-to-earnings (P/E) ratio for the Magnificent Seven is significantly higher compared to the S&P 500’s historical average.
Concentration risk is high. Many investors own these stocks directly and indirectly through index funds, meaning they may be overweight without realizing it.
Diversification is key – The old adage of don’t have all your eggs in one basket should hold true with our stock market portfolios.

4. How to Position Your Portfolio in 2025

Rather than chasing last year’s winners, investors should adopt a balanced approach that accounts for both opportunities and risks.

Investment Strategies for 2025:

1. Maintain Diversification – Reduce overexposure to big tech by allocating across investment categories, in line with your specific goals.

2. Consider Bonds Again – With interest rates likely to decline, bonds may provide steady returns and stability during volatility.

3. Rebalance and Take Profits – If a portion of your portfolio has seen outsized growth, consider trimming positions and reallocating gains to reduce risk.

4. Stay Invested, But Be Patient – Market corrections are normal. Avoid making emotional decisions and focus on long-term growth. Remember the stock market has historically rewarded those who stay invested.

5. Is Crypto Making a Comeback?

Bitcoin and other cryptocurrencies surged in 2024, partly due to regulatory changes and new ETF approvals. But is crypto a reliable investment, or is it still speculation?

Crypto Considerations:

Regulatory Uncertainty – Future government policies could impact prices.
Speculative Nature – Crypto remains highly volatile and should be treated as a speculative investment.

Final Thoughts: Stay Disciplined and Strategic

The 2025 investment landscape will be defined by normalizing market conditions, increased volatility, and evolving opportunities in AI and alternative assets. Investors should focus on long-term strategy, diversification, and avoiding emotional decision-making.

Key Takeaways:

Moderate you expectations of markets to deliver 20%+ returns.
Diversify to avoid concentration risk.
Bonds may offer value again in a falling-rate environment.
AI is still booming, but consider the entire supply chain when investing.
Stay disciplined, take profits, and rebalance as needed.

Want personalized investment guidance? Reach out to discuss your financial goals and portfolio strategy.

Listen to the full podcast episode here: [Insert Podcast Link]