Planning for Potentially Higher Volatility in 2025

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We wrapped up last year with a strong economy and solid stock and bond market returns. Inflation stayed under 3%, GDP growth topped 3%, and the much-discussed "soft landing" held firm. While volatility wasn’t a constant theme in 2024, we still saw some sharp single-day market swings—a reminder that uncertainty can appear at any time.

Now, with a new administration settling in and policy agendas starting to take shape, the big question is: How will these changes impact the economy and markets?

What’s on the Horizon?

For now, GDP growth is expected to remain strong. However, if higher tariffs are introduced, they could slow economic momentum while also putting upward pressure on inflation by making goods more expensive. Similarly, policies that shrink the labor market—such as mass deportations—could contribute to rising wages and inflation.

None of these changes are imminent, but markets don’t just react to what’s happening—they respond to uncertainty and expectations. As the administration rolls out new policies, we’ll likely see volatility driven by both facts and speculation.

Positioning Your Portfolio for What’s Ahead

Market fluctuations can be unsettling, but they don’t change the fundamentals of long-term financial planning. Staying invested and consistently saving—especially in tax-advantaged accounts—remains key. These contributions don’t just build wealth; they also reduce taxable income today.

  • 529 plans: Grow tax-free and may offer state tax benefits.

  • 401(k)s and IRAs: Maximize contributions but consider dollar-cost averaging to reduce timing risk.

  • Health Savings Accounts (HSAs): A triple-tax-advantaged way to save for medical expenses now and in retirement.

Why Diversification Matters More Than Ever

With a strong economy but potential inflationary risks, investors face a balancing act: capturing growth opportunities while managing risk. Diversification is critical, and that means looking beyond just stocks and bonds.

  • Risk Management: A mix of high- and low-risk investments can help stabilize your portfolio when volatility spikes. Understanding your personal risk tolerance is key. Private market investments—such as private credit or real estate—may also help reduce overall volatility due to their lower correlation with public markets.

  • Asset Allocation: Spreading investments across different geographies, industries, and sectors ensures you’re positioned to benefit from market trends while keeping your portfolio resilient.

Keep the Long View in Focus

Market turbulence can make it tempting to react emotionally, but history shows that downturns are followed by recoveries. If you stay invested, you allow your portfolio to benefit from long-term market growth. Selling in response to short-term volatility, on the other hand, turns a temporary market dip into a permanent loss.

A good way to stay grounded is to focus on your goals. Your financial plan is built around your risk tolerance—balancing the growth you want with a level of market fluctuation you’re comfortable with. If your goals haven’t changed, your investment strategy likely doesn’t need to either.

The Bottom Line

Volatility is never comfortable, and there’s a reason the VIX is often called the "fear index." But uncertainty doesn’t have to derail your financial future. Instead of reacting emotionally, take a step back, stay within your budget, and make thoughtful adjustments only when necessary.

At Clear Insight Wealth Management, we take a collaborative approach, working closely with a select group of clients who value strategic wealth management. Our mission is to empower you to live the life you envision, turning financial uncertainty into long-term success.

If you’d like to discuss your financial strategy, we’d love to connect. Schedule a “Get to Know You” meeting at www.myciwm.com.

Adrienne Ross

Adrienne Ross is the owner of Clear Insight Financial Planning, LLC.

https://mycifp.com/
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