Bumpiness has returned to the US stock market in the first quarter of 2025. After enjoying back to back years of double digit gains in 2023 and 2024, the S&P 500 Index just ended first quarter of 2025 down -4.6%. This is the worst performing quarter for the S&P 500 Index since the third quarter of 2022, when the US was grappling with surging inflation and rising interest rates. Today, the concern is around tariffs, trade wars, inflation potentially creeping back up and also uncertainty around what's next for artificial intelligence and if companies that have invested heavily in its future might start to see some payoff. It's quite a bit of news in a short period of time and even the most seasoned investor can let emotions get the better of them. If you are uncertain about investing in the markets right now, you aren’t alone. Below are a few tips to consider.
Have a Plan and Stick to It
When it comes to investing, there are a lot of factors that are completely out of your control. However, there are things you can control. Having a plan can help overcome some of the uncertainty. Outlining your goals, both short term and long term, is a good first step. Once you’ve outlined them, you should work to formulate an investment plan that incorporates things like how much you are able to save each month toward these goals and how much risk you are comfortable with taking on to try and achieve these goals. After putting together a plan, put it into action and stick to it. Periodic assessments can help determine if you are staying on course or if adjustments or fine tuning need to be made.
Stay Diversified
When the stock market is going up, it's easy to get overconfident and start making riskier and more concentrated bets. However, history has shown us that instead of trying to pick "winners" we're likely to be rewarded by simply being spread out and not putting all of our eggs in one basket. It's hard to predict what area of the stock market or bond market is going to be the best performer on a year over year basis. By properly spreading out, you'll likely have exposure to areas that might be doing better than others at any given time versus going all in on one area and finding out you made the wrong bet. Also, it's always a good idea to review your portfolio on regularly scheduled intervals and determine if a rebalance is warranted while taking into consideration taxes and trading costs that may be associated with any such rebalance.
Don’t Try to Time the Market
If you find that you are having a hard time sticking to your investment plan because market movements are keeping you up at night, it might be time to speak with a qualified financial professional. Trying to time the markets correctly is near impossible to do (even for so-called “market gurus” who think they can predict everything). It means you have to be right not once but twice by deciding: when to exit the market and when to get back in. A financial professional can help you assess your tolerance for risk and also help design a diversified portfolio that you can live with through various market ups and downs while taking into consideration your personal goals and objectives.
If you are someone who has been sitting on investable assets, but have been afraid to enter the market, consider a strategy called dollar cost averaging. You may already be employing this strategy without even knowing it if you invest in a retirement plan through payroll deductions at work. When market volatility is high (which it has been), investing money over a period of time at predetermined intervals (i.e. every month on the 15th) can take some of the emotion out of the decision of when is the best time to invest and can also potentially limit losses in the event of a stock market decline. Let's look at the hypothetical example of Bob. Bob has $10,000 he wants to invest in a fund that tracks the S&P 500 Index, but is afraid of recent market volatility. Let’s assume Bob invests the full $10,000 all at once and the S&P 500 subsequently declines in value. Not ideal, as Bob’s initial investment has lost value (at least in the short term). On the other hand, let’s say Bob invests the full $10,000 and the S&P 500 subsequently goes up in value. Well, then the strategy of buying in all at once paid off for Bob in this case. Dollar cost averaging aims to find a middle ground that could potentially be an alternative to “waiting for the ideal” time to invest, which is impossible to know or predict. In theory, if markets are volatile and going up and down, buying in at set predetermined intervals means you will likely be buying more shares as markets dip and less shares as they increase. The goal is to buy in at an average cost over time. It’s not a foolproof strategy as no one can predict with certainty where markets might be headed, but it does allow an opportunity for people who may have been sitting out on the sidelines to gradually enter the market over time.
Filter Out Noise
Lastly, it's important to filter out noise. The most quoted market indices are the S&P 500, NASDAQ, and Dow Jones Industrial Average. You should consider the composition of these indices (and other less quoted ones) before you try and use them as a benchmark for your personal portfolio. For example, if you are a conservative investor whose portfolio consists of a mixture of different types of bonds, trying to use the S&P 500 Index as a benchmark isn't that helpful, as you are essentially comparing apples and oranges. That's why it's important to keep things in perspective when you see flashy headlines.
Making investment decisions can be challenging for even during the best of times. However, understanding what you can and can't control, creating a long term investment plan that incorporates your unique goals, and taking on an appropriate amount of risk that you're comfortable with are all things that you can do to mitigate some of the uncertainty and feel more confident. If you are unsure of how to take the first step or if you'd like a second opinion on your current investment plan, consider reaching out to a financial professional for guidance.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assumes success or protects against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against a loss in declining markets.
LPL Financial and Croxall Capital Planning do not provide tax or legal advice.