Quarterly Client Update Q1 2025
It’s hard to believe the first quarter of 2025 has already passed. Another surprising development is that Eric’s family recently welcomed a new puppy—something that seemed unimaginable for Eric, who had resisted pets for years until the kids finally wore him down. As adorable as Maverick is, Eric has quickly discovered the realities of puppy parenthood, particularly at 2:00 AM, standing outside in the cold, patiently encouraging their puppy to "go potty." Although these early mornings are uncomfortable, Eric knows they're temporary, and the eventual reward—a well-trained, beloved family member—is more than worth the short-term inconvenience.
This late-night puppy experience has parallels to investing. Right now, the U.S. markets feel a lot like standing outside at 2:00 AM—uncomfortable and uncertain. Much of the current uncertainty centers around tariffs. The tariff situation is fluid, with policies being adjusted frequently and differing significantly from country to country. Whether these are genuine long-term policy shifts or merely negotiating tactics is unclear. What is clear, however, is that markets dislike uncertainty, and this uncertainty is driving volatility.
Another important factor contributing to current market volatility is valuation. U.S. stocks were undeniably expensive at the start of 2025, following two years of impressive returns: 25.96% in 2023 and 23.81% in 20241. While no one expects 20%+ annual returns indefinitely, this exceptional growth meant that markets were especially sensitive and primed for a correction at the slightest hint of uncertainty. As a result, U.S. stocks declined -4.72% in Q11, and for many investors, it felt even more severe, since prominent names frequently covered in the news were among the hardest hit2.
The silver lining in Q1 was seeing diversification in action. While U.S. stocks struggled, international developed stocks returned 7.01%3, emerging markets returned 3.01%4, and U.S. bonds returned 2.78%5. Diversification—spreading investments across asset classes and regions—is a core principle of prudent portfolio management. Its benefits are rarely as evident as they have been this quarter. In the next week or two, you'll receive your Account Snapshot, clearly illustrating how diversification benefited your portfolio during this period.
It’s natural to feel concerned about ongoing market volatility and to question how long it may last. We believe that, just like puppy training, periods of market discomfort are temporary, and disciplined behavior during these challenging times has historically been rewarded. We remain confident that this volatility, too, will pass. Our disciplined approach continues to focus on your long-term financial goals, rather than reacting to short-term fluctuations.
As part of our proactive management strategy, we continue rebalancing portfolios to maintain alignment with your investment objectives. Additionally, we are actively reviewing tax returns to identify any opportunities for optimization. Please send us your completed 2024 tax returns at your earliest convenience to ensure we can incorporate this important information into your financial planning.
We are here to support you. Do not hesitate to reach out if you have any questions or concerns. We remain deeply committed to your financial well-being and are here to guide you through all market conditions.
1Russell 3000, Dimensional Quarterly Market Reviews. The Russell 3000 Index is a capitalization-weighted stock market index, maintained by FTSE Russell, that seeks to be a benchmark of the entire US stock market. It measures the performance of the 3,000 largest publicly held companies incorporated in America as measured by total market capitalization, and represents approximately 98% of the American public equity market. The index, which was launched on January 1, 1984, is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group.
2Some of these returns include: Telsa -35.83%, Alphabet (Google) -18.20%, NVIDIA -19.29%, Apple -11.20%, Amazon -13.28%: finance.yahoo.com
3MSCI EAFE, Dimensional Q1 2025 Quarterly Market Review. The MSCI EAFE index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia.
4MSCI Emerging Markets, Dimensional Q1 2025 Quarterly Market Review. The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries.
5Bloomberg US Aggregate, Dimensional Q1 2025 Quarterly Market Review. The Bloomberg US Aggregate Bond Index is a broad-based benchmark that measures the investment grade, US dollar denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities. This index cannot be invested into directly.
Each index mentioned in this communication is unmanaged and cannot be invested into directly.
Past performance does not guarantee future results.
Asset allocation or diversification does not guarantee a profit or eliminate the risk of loss.