Happy New Year! 🎉
Candidly, I’m genuinely surprised that I could put our end of quarter memo out on the 2nd day of the New Year. Not because of the work required on my end, but because I was worried that some of the data wouldn’t be updated in time.
So, I’m thankful that it was.
As for what’s inside, I think it’s fair to say there is A LOT to be pleased with and excited about right now. Even though I live and breathe this stuff, I was still somewhat surprised as I was putting this together by how well things have gone, especially given all the negativity and noise that surrounded us this year.
I think our clients will feel similarly, and that’s what I hope comes through in this week’s note.
As always, I welcome your candid feedback.
Let’s dive in. 🤿
TL;DR
2025 was another strong year across a wide range of markets, and the fundamentals underneath the headlines were better than most people would guess. The consumer held up, companies kept printing profits, and while forecasting is still a game of professional wrongness, the big-picture case for long-term optimism stays intact.
Your 2025 Wrapped:
If you followed the news in 2025, you probably felt this: everything sounded urgent, and most of it sounded bad.
That’s the problem.
Not that bad things happen. They do.
But the “always on” headlines can make it difficult to maintain the long-term perspective required to be a successful investor.
In today’s recap, I’ll share a few thoughts about the consumer, the companies we invest in, some interesting notes on investing in 2025, and I’ll finish with three reasons for big-picture optimism as we look ahead.
I hope you enjoy this and find it helpful in gaining perspective as we work together in pursuit of your financial goals. Please feel free to share this with others if you desire to do so.
First, the Returns… (total return as of 12/31/2025)
Stock Indexes:
- S&P 500: [ +17.88% ]
- Dow Jones Industrials: [ +14.92% ]
- U.S. Small Cap: [ +11.59% ]
- International (Developed): [ +34.17% ]
- International (Emerging Markets): [ +24.56% ]
Bond Indexes:
- U.S. Aggregate Bond Index: [ +7.07% ]
- U.S. Government Bond Index: [ +5.97% ]
Translation: 2025 rewarded patience, and it rewarded diversification too.
The State of the Consumer
Household net worth hit a record $167 trillion.
Since the start of 2020: assets +$60T, liabilities +$4T.
That is $15 of assets for every $1 of debt.
(Source: St. Louis Fed; Assets: St. Louis Fed; Liabilities: St. Louis Fed)
Consumers look okay month to month, too.
Inflation-adjusted deposits remain higher than in 2019 across income cohorts.
Debt service as a percent of income is lower than at any point from 1980-2020.
(Sources: Cash: Bank of America; Debt Service: J.P. Morgan – Slide 27)
Rates and inflation brought plenty of uncertainty.
Inflation: 2.7%, below 2.9% in December 2024.
The Fed paused, then resumed cutting late in the year. Total cuts: 0.75%.
Hold forecasts lightly.
(Sources: Inflation: Charlie Bilello; Fed Funds Rate: St. Louis Fed)
The State of the Companies
GDP surprised to the upside.
Forecasts were revised down as tariff plans rolled out.
But real GDP is now likely around 2.6% for the year, roughly meeting initial expectations.
Resilience matters.
(Sources: GDP Forecast Revisions: Oxford Economics; 2025 Real GDP Forecast: First Trust)
Profit margins stayed impressive.
S&P 500 net profit margin hit 13.1% (Q3), the highest in at least 15 years.
That helped drive 39 new all-time highs in 2025.
(Sources: Profit Margins: FactSet; All-Time Highs: Vanguard)
The State of Investing
It was not just large cap U.S. stocks.
International stocks had a stellar year.
Bonds, small caps, real estate, gold, silver, cash, and most asset classes also finished positive.
(Sources: Most Asset Classes: Blackrock; Gold/Silver: NBC)
Gold finally cleared its old inflation-adjusted high.
It took more than 45 years. Yes, really.
Silver hit a nominal high, but still needs to more than double again to catch up with inflation since 1980. Yikes.
Over that same period, $1,000 in equities grew to more than $170,000.
(Sources: Gold: Bloomberg; Silver: Macrotrends – See 2nd Chart; Equity Total Returns Excluding Taxes, Fees and Other Costs: Political Calculations [1980.01-2025.11])
AI stayed front and center.
Bubble calls are loud. The outcome is unknowable.
But history is clear: transformative tech often brings excess, then lasting value.
Railroads, electricity, the internet. Same movie, different decade.
Time will tell, but history is encouraging for long-term investors like us.
(Source: Howard Marks)
Three Reasons for Optimism
1) Youth literacy is at an all-time high.
Global youth literacy is now 93%.
And the internet still has more than 2 billion people to reach.
(Sources: Youth Literacy: World Bank; Internet: World Economic Forum)
2) Science is finding the keys to longer, healthier lives.
Risk rises with age, often due to cancer, heart disease, dementia, and more.
Research into calorie reduction, DNA changes, epigenetic programming, and senolytics shows promise.
Pun intended, it’s an exciting time to be alive.
(Source: Free Think)
3) Quiet progress is everywhere.
Record harvests, falling grain prices, and rice at an 18-year low.
Global unemployment at its lowest level since 1991.
And in the last decade: electricity to 292M more people, safe drinking water to nearly 1B, and basic hygiene to 1.5B.
(Source: Fix the News)
Final Thoughts
As evident by the last three notes, the progress being made in our world today is nothing short of miraculous. We just do not see much of it in our feeds.
It’s easy to argue that progress is not slowing down, but accelerating.
And that is what we should expect. History is one long story of humanity solving one huge problem after another. Solving problems is good for humanity, and it also drives markets over the decades ahead, just as it always has.
I hope you’ve found this review encouraging as we work together toward your most cherished financial goals.
It’s my pleasure to help you keep your perspective on point.
If anything grabbed your attention that you’d like to discuss further feel free to book some time on my calendar.
Ben!