Markets - 4th Quarter, 2025

Globally, it was a risk-on rally throughout the year, with foreign equity leading the way due to cheaper valuations and a weakening dollar. Bonds also rallied due to lower interest rate expectations and three 0.25% interest rate cuts by the Federal Reserve. Domestic large-cap equity markets continued to set all-time highs, illustrating the importance of staying the course after a volatile start to the year.

As a reminder, the index returns above should only be used as a very broad point of reference.

Cash & Fixed Income: Tax-free bonds led for the quarter, while high-yield bonds led for all other periods. Tax-free bonds still lagged in the 1 and 3-year periods, while aggregate bonds performed the worst over the 5 and 10-year periods. Cash was the worst performer for the quarter and the past 15 years.

In November, we took profits in stock (large, small, and foreign) and used the proceeds to bring bonds and alternatives back to target as part of a quarterly rebalance. We continue to hold high-quality bonds and alternatives as they provide diversification from stocks during periods of extreme volatility, as we experienced in January through April. We hold very little cash as part of the portfolio allocation, since it does not generate real returns above inflation over time. The returns on cash will continue to deteriorate as the Fed cuts rates.

Equities: Foreign stocks led for the quarter and 1-year, while large-cap stocks led for all other periods. Mid-cap stocks lagged in the past 1-year, while small-cap stocks lagged in the 3 and 5-year periods. Foreign stocks were the worst performers for the past 10 and 15 years.

After the November rebalance, we are also back near our long-term target in equities, as the S&P 500 just completed its third year of double-digit gains. We continue to own high-quality foreign and domestic stocks. With valuations at historically high levels, particularly in large-cap US stocks, it is crucial to maintain a portfolio allocation that aligns with your short and long-term investment goals. Having ample cash on hand for expenses and an emergency fund, along with a proper allocation, will allow you to weather any market volatility that might occur. As always, we look forward to chatting with you, discussing your planning goals, and navigating 2026 together. Happy New Year!

This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.