Key Takeaways for the New Year:
Avoid placing too much faith in market predictions. Historical trends show they’re often unreliable.
Inflation persists, but diversified investments, appropriate asset allocation, and thoughtful tax strategies remain critical tools to safeguard your wealth.
Reassess your “time affluence” and how you can prioritize your personal well-being alongside financial security.
As we step into 2025, many are looking back at the unexpected successes of 2024 and wondering what the year ahead may hold. The stock market delivered stellar performance in 2024, exceeding expectations with over a 25% gain, interest rates finally started coming down, election uncertainty was removed, the jobless rate stayed near its historical low and inflation, while persistent, showed significant signs of moderating. Still, uncertainties remain on the horizon. With so many tailwinds in our favor, it’s tempting to think we’re poised for a very strong year, let’s explore considerations for the year ahead and how to navigate whatever 2025 brings.
After a year of stronger-than-expected economic growth and easing inflation, 2025 begins with cautious optimism. Interest rates, while projected to decline, may not decrease as quickly or as much as previously anticipated. The Fed spooked investors by hinting that it might only lower interest rates twice in 2025. Most market watchers had been expecting half a dozen rate cuts in the new year. So, now we’re in this awkward phase in which mortgages, credit cards, auto loans, business borrowing, and student debt remains high, but the yield on “safe” fixed income is coming down. This could mean ongoing challenges for homeowners, borrowers, and businesses navigating high credit costs. Meanwhile, fears of a global trade war and shifting dynamics in the tech sector could spur market volatility.
What should you do? Stick to your long-term plan. Predictions about markets and recessions—no matter how informed—are rarely accurate. Rather than trying to guess the future, focus on strategies that weatherproof your financial life. Diversification, prudent planning, and disciplined decision-making will remain your best allies in 2025.
Inflation: Still on the Radar
Inflation will likely remain a prominent topic in 2025, continuing its impact on everything from fuel and groceries to housing and healthcare. As Ryan M. Vogel, CFP® Novi’s Chief Planning Officer, Partner explained recently, inflation remains higher than normal because we’re still working through the after-effects of COVID when the normal market dynamics of supply and demand were completely disrupted. For retirees and those on fixed incomes, inflation can feel especially daunting. Vogel reminded us, that safeguarding your wealth requires:
Allocate your assets properly. Many people, especially retirees, have a mismatch between their overall investment allocation, risk tolerance, and needs.
Diversify your portfolio. Treasury Inflation-Protected Securities (TIPS), commercial real estate (through real estate investment trusts - REITs), foreign investments, gold and even cryptocurrency, when used prudently, can each insulate you from inflation risk and provide attractive returns.
Seek tax efficiency. “The type of tax planning we do for our clients is extensive,” explained Vogel. “For example, we evaluate your projected tax brackets from now through the rest of your life, in each calendar year, and determine which years are better than others to realize income.”
For those feeling the pinch, Devin Starr, CFP® encouraged taking action instead of waiting for a “normal” to return, noting that you shouldn’t overreact to inflation when making retirement decisions. “Quite a few of you have told us you’re waiting until things ‘normalize’ before you buy a new car or make other major purchase decisions,” said Starr. “But many of you have been waiting for things to normalize for over two years and that kind of thinking – like trying to time the stock market -- can wreak havoc with your financial plan and prevent you from moving your life forward.” That’s because the opportunity cost of not putting that money to work can be significant.
“Yes, we're in a period of high inflation,” continued Starr. “I’m sure you’re feeling it in your wallet. But this too will pass, just like stock market volatility. Bumps in the road will happen and we’ve already accounted for them in the retirement plans we put together for our clients…”
While thoughtful planning can help you weather inflation's impact, it's natural to explore tools that claim to offer protection during volatile periods. This brings up a common question we hear: Is gold still a reliable inflation hedge?
Rethinking Gold’s Role in Inflation Protection
Gold has long been touted as a safe harbor during times of inflation, but as Ryan A. Dunn, CFP® explained, gold’s volatility and inconsistent returns make it less appealing. Dunn provided a few potentially more appealing alternatives like intermediate-term bonds and TIPS (Treasury Inflation Protected Securities) but noted for most clients, the best way to combat inflation is to hold a globally diversified stock portfolio. “During inflationary periods, companies can pass on price increases to customers, which leads to higher revenue and higher returns,” Dunn advised. “And when your stock portfolio is sufficiently diversified, you’ll have some companies paying income and some expecting price appreciation.”
Looking Ahead: Education and Legacy
By the time young people enter college, nearly four in five (78%) say money worries are causing them significant stress, according to Experian research. The study also found that money worries cause six in ten (60%) students to avoid social activities with friends, and nearly half (46%) are so anxious about money that they avoid checking their bank balance altogether. The rising cost of higher education shows no signs of abating. In fact, the cost of higher education has risen twice as fast as the consumer price index. The good news? With less than half of the questions in its previous iteration, the simplified FASFA (Free Application for Federal Student Aid) has made applying for aid simpler and more accessible which will be a crucial tool in 2025 for families seeking financial aid. Brenden Leese, CFP® explained, contrary to popular belief, there are technically no family income limits for the FAFSA program.
“I especially wanted to mention the simplified FAFSA to the parents of prospective graduate students,” noted Leese. “Many did not need financial aid to get their kids through college (thanks to diligent savings in 529 plans). But now those savings are likely depleted, and the cost of graduate and professional school can be jaw-dropping—just when you’re thinking of winding down your career.”
Regardless of family income or net worth, the student in your life may be eligible for grants, scholarships, work-study programs, college loans, or even career school. And for Novi clients? Remember that we do not charge extra to help our clients with higher education.
Empowering the Next Generation Through Financial Literacy
As students explore the diverse opportunities higher education will offer in 2025, equipping them with financial literacy becomes even more critical. The ability to understand and manage student loans, scholarships, and personal budgets empowers the next generation to make informed choices about their educational paths and future careers. Financial literacy not only supports academic aspirations but also fosters the confidence needed to build a secure financial foundation post-graduation.
Dan Satz, MS, CFP® has identified many financially responsible gifts for young people in your life, broken down by different age groups. “Fortunately, there are some simple and fun ways to get the young people in your life on the path to smart saving, investing, and wealth-building habits,” noted Satz in his piece Holiday Gift Anxiety? Give the Gift of Financial Literacy which include a list of gift ideas appropriate for the Holidays, birthdays, graduations, bar/bat mitzvahs, communions and more.
2025 offers an excellent opportunity to gift the young people in your life with tools for financial success. Instead of traditional presents, consider opening a custodial investment account or contributing to a 529 plan. Satz emphasized that “empowering children and grandchildren with financial knowledge early can build confidence and set the stage for a lifetime of smart decision-making.”
Mental Wealth: Prioritizing Well-Being
Beyond financial security, 2025 is an opportunity to assess your “time affluence.” As the old saying goes: “money doesn’t guarantee happiness.” While we spend a lot of time working with clients to help them grow and retain their wealth, we also help them use their money to free up time for more enjoyable activities. As Devin Starr, CFP® wrote recently, many of you have realized that at a certain point in life, time becomes your most valuable asset -- even more so than money and material purchases.
Studies show that outsourcing chores (cleaning the house, mowing the lawn, cooking, going grocery shopping) can be one of the biggest contributors to happiness. This is due to a “double whammy” effect of reducing stressors in your life (negative) while at the same time allowing you more time to do things you enjoy (positive). When it comes to outsourcing chores, Starr said, don’t hire help for the ones you don’t mind; hire help for the ones you truly dislike. “If you’re not sure, write down all the regular chores taking up your time and energy and rank them from ‘most unpleasant’ to ‘least unpleasant,’” said Starr. “Start by outsourcing the most unpleasant ones at the top of the list,” said Starr, and “you’ll be amazed how much time and mental energy that frees up for you for things you enjoy in life.”
Planning for 2025 and Beyond
As 2025 unfolds, remember that uncertainty is a constant in financial markets. But with a well-designed, personalized plan, you can weather any storm and keep moving toward your goals. Our team at Novi is here to support you every step of the way.
From inflation concerns and market fluctuations to time management and mental well-being, this year presents countless opportunities to grow and strengthen your financial future. Let’s work together to make 2025 a year of prosperity, fulfillment, and success. Preparing for 2025
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