4Q25 Market Review
In this post, John Chesbrough gives a review of recent performance in the investment markets. Note from John: Usually I pick a photo that matches the season. However, in this quarter I captured such an adorable picture of my mom up at Sun Peaks, that I could not help but use it (with her permission of course). Way to go mom, you are still skiing in your 80s. Now that is living for the long-term!
There are three sections: What happened, what we expect going forward, and what we are doing as a result.
The markets were on cruise control during the 4th quarter. That may be a surprising observation given the wild ride of domestic and global news. I know that I am constantly surprised. The up-performance is a good reminder that financial markets are not locked arm-in-arm with the broader news.
Performance was right in line with expectations, with a few observations of note:
Over the most recent quarter:
- Stocks and bonds posted typical gains,
- International stock markets did better than the US by almost a 2-to-1 ratio!
- US bonds did better than international
For the year (2025)
- US stocks posted a 17% annual return, almost twice the “normal” annual gain
- International markets posted gains of over 30%. That gain was nearly 5x the typical annual gain for those markets!
- Bonds posted strong, though more modest than stock, returns, up between 3 – 7%, with US bonds doing better than international bonds.
What was notable to me
International stocks had a much stronger 2025 performance than the US stocks, though both were strong. Interestingly, the reverse was true in bond markets. This observation casts aside a notion that performance is tied to a political party, and points out that there is lots more going on. The weakening of the US dollar vs other currencies can explain only a few percent of the relative performance.
The out-performance of international stocks makes sense to someone (like me) who puts a strong emphasis on valuation. I have been expecting the international markets to out-perform the US for several years. I would not be surprised to see the divergence continue.
Detailed Market Performance – a watch
The following link is a less than 5-minute narrated video of market performance and other resources in this blog post. Some people prefer a guided tour over a read. But, the tour will be too fast to read!
Detailed Market Performance – a read
To view a detailed analysis of investment performance in the US and global stock and bond markets, click on the button below.
The investment market performance report is prepared by Dimensional Fund Advisors (DFA), one of our partners in investment management and client support. If you would like to find out more about DFA, you can visit their website directly at: https://www.dimensional.com/
If you study historical market behavior, it is clear that the most likely future direction of markets is upwards, with a gigantic asterisk pointing out that we know there will be downturns, roughly one out of every 3-4 years. The challenge of course is figuring out when. There is little evidence to correlate the when of market downturns with any signals – from recent market growth, to media talk of “bubbles,” to graphs of high market valuations, to slopes on the interest curve. The fact is, if there was a reliable signal to predict market downturns, or for that matter, market up-turns, then investors would already be acting upon such signals and the signal-to-response logic would quickly be incorporated into market prices. As the saying goes, strong investment performance in the markets is more a matter of “Time in the markets rather than timing the markets.”
Our investment philosophy at Trail Financial Planning is to embrace the long-term trends, but keep an eye on streaks and the near-term. The way this plays out as we design and manage investment portfolios is through our three legged strategy of portfolio construction:
Risk Tolerance. What level of return and risk can you live with and sleep well at night?
Financial Planning. What amount of return and risk do you need to live your best life (this is called “financial planning.”)?
Time-Frame Analysis. We forecast out when you may need money, and bucket those needs into 3 time-frames: Short-, Intermediate-and Long-term. Any money that will be needed in the short term, should be invested conservatively, with preservation as an objective. Long-Term money is a good candidate to invest for growth, in stock-heavy strategies. Intermediate-term money, however, deserves a more nuanced approach, more influenced by current market conditions. In light of current market conditions and high valuations of US-based stocks in particular, we have extended our definition of “intermediate-term” money from the next five years to the next ten. For some of our clients, this is leading us to recommend lower risk portfolios.
Notice that this approach is not a simple “just hold on” strategy. Rather, it is a dynamic strategy driven by our financial planning and answer the question, “What do you really want out of this life you have been given?”
Sequence of Return Risk for those in or near Retirement
I originally posted this section in July 2025. However, the advice remains as relevant today as it has for several years. So, I am keeping it in. If you are within 10 years of retirement (the event when people typically move from accumulation to distribution), it is worth a read!
While the markets have done well, we should always be prepared for bad results. People in their “accumulation days” (i.e. working and saving) generally have time to absorb and recover from downturns. Those who are in distribution (i.e. in or near retirement) may not. There is a specific risk called the “Sequence of Return Risk” that we are evaluating for all of our clients who are near or in distribution. In essence, the Sequence of Return risk addresses the risk of poor market performance occurring early in a distribution phase. What could happen is that the market goes into a poor performance phase at the same time that the person withdraws money, leading to a lower portfolio balance. Under some conditions, this could lead to a person running out of money much sooner than under “normal” conditions. The following 3-minute video illustrates one such scenario:
The simulation illustrated is a very generalized model meant only to illustrate a concept rather than to produce a forecast for the fictitious client’s future. It should be pointed out that this is a risk discussion, in other words we are talking about less likely outcomes, but where the impact could be large. The magnitude of this risk is very client-specific, and we would encourage you to talk to a financial professional if you are wondering whether it is a risk you should take action to mitigate.
Disclosures and end notes
Information contained within is generalized information about investing and the investment markets. It should not be considered investment advice, personalized or otherwise. Past investment performance is not a guarantee of future investment performance. Investing in markets comes with an inherent risk of losing money.
