2nd Quarter 2025.
Market Review
Performance Driver Review 
Market Perspectives
The financial markets have had an interesting first six months of 2025. With the intense market whipsaw surrounding tariff talks at the helm, several different ideas were brought forward as relevant quarterly Market Perspectives topics. Some ideas focused on geopolitics and policy; some diagrammed the case for sustained public company earnings growth; and others discussed possible economic points of deterioration. After much discussion, it was clear the most relevant and impactful theme in today’s market is reminding investors just how important it is to focus on what they can control versus what they cannot. Most of those prospective topics fall firmly in the camp of things that both WoodTrust and its investor base have no control over.
WoodTrust clients may recall a slide from the presentation deck that lays out this exact philosophy: Control of Your Financial Future – What You Can Control v. What You Cannot Control. Effective investing starts with an understanding of what is beyond the scope of control.
What You Cannot Control
While the list of things outside of an investor’s control is potentially endless, a few key categories worth being reminded of are as follows:
- Stock and Bond Market Performance: Individual investors have little to no influence over the performance of financial markets. It is difficult enough to predict market returns let alone control them! Investors can certainly plan around long-term market expectations though, but that will be discussed later.
- Macroeconomics: By definition, macro-economics are BIG. These are statistics like unemployment, consumer sentiment, interest rates, etc. These data points are influenced by the masses and no single person (outside some high-level politicians) can do much to move them.
- Geopolitics: Yes, of course, an investor can influence politics by voting, lobbying, etc., but in the context of the control of a single investor, he or she has very little influence over foreign policy moves, military power or any other geopolitical factors.
- Business Fundamentals: While an individual may be able to control some of the growth and profitability of their own business, when it comes to the full array of publicly traded companies, there is no way to ensure that revenues grow year-over-year and profit margins expand.
What You Can Control
After a significant though non-exhaustive list of what investors cannot control, it’s pivotal to identify what they are in control of:
- Lifetime Earnings: Earnings are certainly the starting point. Finding a fulfilling career and working hard each day to maximize long-term wealth accumulation is the first step an individual truly has control over.
- Savings Rate v. Spending Rate: Many have heard the mantra, “It’s not about how much you make, it’s about how much you spend.” While the control category of lifetime earnings was aptly first, the way an individual budgets his or her earnings is incredibly important. “Paying yourself first” i.e. having the first monthly deduction from a checking account be one that goes to an investment account is a hugely important factor that an investor has control over.
- Asset Allocation: This is it – this is the most important part of this piece because an investor can correct it TODAY. Asset allocation is the amount of an investor’s portfolio that he or she has in stocks versus bonds. Several different data points go into getting the right asset allocation: age, job stability, risk tolerance, the list goes on. An investor is totally in control of their asset allocation.
Getting asset allocation correct is deceptively simple and endlessly complicated, but it is the expertise of a WoodTrust portfolio manager. The hardest part about asset allocation is getting an investor to understand today what they are capable of withstanding in the future. It is easy for an investor to say they want to be completely risk-on when markets have been sanguine for months on end, but how will that same investor feel if markets turn over and their portfolio declines substantially?
Fortunately, investors were granted three swift and distinct “trial runs” in the last half decade to understand if their asset allocations were set correctly. These trial runs were significant market downturns that recovered relatively quickly, leaving investors feeling as if the short-term misfortune was nothing more than a bad dream. 2020, 2022, and the first half of 2025 were these trial runs. On average, an investor with a portfolio balanced between stocks and bonds avoided over 40 percent of the downside during these market drops compared to an investor who had a portfolio only invested in stocks (the riskier portfolio).
In Summary
So how did you feel during those three “recent” selloffs? Did you check your account balance and feel a tightness in your stomach? Did you see red all over CNBC or Yahoo Finance and lose sleep over it? If so, you’ve been blessed with a fourth chance. Markets recovered all those losses in short order. Perhaps it’s time to move some money from stocks to bonds to avoid that feeling if a market downturn is more prolonged. It may be a long time before that next bear market, or it may be just around the corner, but with the right asset allocation, you will be able to handle it when the time comes. It’s time to meet with your portfolio manager. As always, we thank you for your trust and look forward to our meetings with you in the near future.
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