2025 State of the Stock Market | Brian Feroldi | Ep 531

ChooseFI

Brad Barrett | Choose FI Media

Financialindependence, Investing, Firemovement, Passiveincome, Frugalliving, Personalfinancepodcast, Daveramsey, Careers, Business, Earlyretirement, Habits

4.8 • 5K Ratings

🗓️ 27 January 2025

⏱️ 42 minutes

🔗️ Recording | iTunes | RSS

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Summary

Explore the latest insights on the stock market performance and investment strategies with friend of the show and frequent guest Brian Feroldi. This episode dives deep into the trends that shaped 2024 and what to expect in 2025, discussing everything from the significance of the S&P 500 to long-term investing principles and the impact of emerging technologies on market growth.

Key Topics Discussed:

Review of 2024 Market Performance

S&P 500 Gains: The S&P 500 saw a 25% increase in 2024, following a 26% rise in 2023.
Frequency of High Returns: 20%+ returns are uncommon but have occurred five times in the past decade.

Investor Policy Statement

Investment Horizon: Key question - When do you need your investment to pay off? The stock market is not ideal for investments with a timeline less than five years.
Actionable Takeaway: Assess your investment horizon and risk tolerance before investing in stocks.

The Expectations Game

Managing Expectations: Investing is about understanding potential returns compared to what you expect.

Concentration of Returns

Top 10 Companies: The top 10 stocks in the S&P 500 represent 39% of the index's total value, an all-time high. These include major tech firms referred to as the "magnificent seven."
Investor Caution: Be cautious about concentrating investments solely in these companies as market dynamics can shift.

Valuation Insights

Current Valuations: The forward price-to-earnings ratio for the S&P 500 stands at 21.5, which is above the 30-year average of 17.
Future Returns: Be prepared for lower future returns, with predictions leaning towards low single digits based on historical data under similar valuation scenarios.

Market Concentration Concerns

Current Market Dynamics: While the biggest companies dominate, many are strong businesses leveraging innovative technologies like AI. Investors should stay aware of the risks associated with market concentration.

Reasons for Optimism

Innovation Potential: Despite high valuations, emerging technologies could justify current price levels and drive future growth.

Lifelong Learning

Importance of Education: Continually educate yourself on investing principles and market trends.

Key Insights & Actionable Takeaways:

Focus on Time Horizons: If you need money in less than five years, avoid the stock market.
Sustained High Savings Rate: A high savings rate can greatly enhance your financial security.
Stay Agile: Continually update your investing strategy and be flexible in your approach as market conditions evolve.
Monitor Valuations: Keep an eye on the market's valuation levels and adjust your expectations for future returns accordingly.
Diversification: Consider diversifying beyond large-cap stocks into small caps, international stocks, or real estate for better risk management.

Notable Quotes:

"If the answer is any time period less than five years, I don't think the stock market is the place that you should put that capital."
"Investing is always an expectations game."
"Education is the first step to investment success."

Additional Resources:

Brian's Website: View Here
JP Morgan Asset Management Stock Market Presentation: View Here
Episode Mention: Explore "The Role of Bonds in a Portfolio" Episode 194

Discussion Questions:

What are your personal criteria for investing in the stock market?
How should historical returns influence your current investment strategy?
What are your thoughts on market concentration and its implications for investing?

Transcript

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0:00.0	Hello and welcome to Chusify. Today in the show, we have a good friend Brian Feraldi back on to talk about the
0:05.6	2025 state of the stock market. Brian is our most frequent guest in the history of Chusify, and he's the one I go to.
0:13.3	Whenever I have questions about the stock market, about investing, especially with individual stock
0:17.6	investing, it goes back to the very early days of Choose Defi. And Brian has
0:22.2	opened our eyes in so many ways. He's so intelligent. He's so well researched. And he's just a
0:28.0	wonderful guest. I think you're really going to enjoy this. And with that, welcome to Choose
0:32.1	Have Fi. Brian, always good to see you, my friend. How's it gone? Brad, great to be back. Thank you for having me, my friend.
0:44.7	Yeah, you bet. You bet. So, okay, I think we should kick off. Obviously, this is going to be the 2025 state of the stock market. But let's do a little look back. So let's talk about a review of
0:56.3	24. Yeah. Well, for all the financial nerds that are listening to this, I'm sure that everybody
1:01.9	just updated their financial net worth statement in early January. And if those people had money
1:08.5	in the stock market, it's likely that they had a big smile on their face
1:12.6	because 2024 was another great year for investors. The large cap index funds, namely the S&P 500,
1:20.4	finished the year up 25%. And in 2023, it was up 26%. So two 20% plus return years in a row, that can do wonderful things for your net worth.
1:33.4	Yeah, ever so slightly, right? That's not a bad thing at all. Can you give us a sense historically of how
1:40.8	anomalous is a 25% increase? Is that something we see fairly often? Just for people who have no
1:48.5	sense of this. How regular is that? So if you look back at the long term history of, let's say,
1:53.2	the S&P 500, the term that always gets quoted is a 10% annualized return. That's about what people
1:59.2	can expect if they invest in the U.S. stock market
2:01.3	for long periods of time. However, that number is a little bit misleading because it's actually
2:06.6	quite rare that the market actually returns about 10% in any given year. It tends to overshoot
2:13.0	that number and then undershoot that number year by year. So 20% returns are not something that
2:19.5	happened frequently, but they're not all that uncommon either. In fact, in the last 10 years,
	...

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