Retirement Plan Update, Q1 2025

Market Recap:

Uncertainty and market volatility began to rise in the first quarter.  With a wide range of possibilities in economic and policy outcomes, investors and businesses are having a difficult time planning ahead.  That sent the S&P 500 into a 10% drop for the first time in the last couple of years, even after making new all-time highs in mid-February.  While domestic stocks dropped in March, diversified portfolios fared better as international stocks and bonds rose.  By the end of the quarter, markets reflected some rising risk of recession and expectations for interest rate cuts through the rest of the year.  Everything went haywire in early April after the announcement of significant tariffs on many trading partners, leading to even more uncertainty amidst a growing trade war.  There is no certainty how it all plays out in markets or the economy, but volatility is back in play, and it brings back a lot of investing emotions that have been on the back burner for a while. 

Investing in Uncertain Times

History tells us that stock market declines are an inevitable part of investing.  Despite periods of volatility, over long periods of time, stock prices tend to move higher.  The good news is that corrections (defined as a 10% or more decline), bear markets (an extended 20% or more decline), and other challenging patches haven’t lasted forever. The S&P 500 Index has typically dipped at least 10% about every 18 months, and 20% or more about every six years, according to data from 1954 to 2023.  While past results are not predictive of results in future periods, each downturn has been followed by a recovery and, over time, a new market high.  Because no one can accurately predict short-term market moves, and investors who sit on the sidelines risk losing out on periods of meaningful price appreciation, we always say it’s time in the market that matters, not market timing.  In addition, diversification matters, and a fixed income allocation can help bring balance and stability, especially as you approach retirement.  Further, as a retirement plan participant, dollar cost averaging into the market during volatile periods can be a good time to “buy low”.