Welcome to our March 2025 Newsletter
Why do many Vermonters put snow tires on their vehicles each winter? Winter tires are an added expense—both in initial cost and annual installation. They take up storage space, can be noisy, and may affect gas mileage. So why use them? For most, the peace of mind that comes with knowing we are prepared for winter conditions outweighs these drawbacks. We can’t predict the timing or severity of winter storms, yet we can prepare ourselves for them, knowing that they are an eventuality of life in Vermont. The same principle applies to investment strategies.
We have worked with each of you to develop an asset allocation suited to your risk tolerance, time horizon, and return objectives. By crafting diversified portfolios with broad industry exposure and regularly rebalancing asset class and security positions, we aim to give you the confidence that your portfolio is ready to ‘weather’ many different market environments. No one can reliably predict when market downturns will begin or end, but we know with certainty that, over time, they will occur periodically. While it is undeniably stressful to ride out these periods, it has been proven time and again that a disciplined, long-term approach consistently outperforms efforts to time the market.
Each downturn is driven by a unique set of factors, and there are several that seem to be contributing to the most recent selloff:
- Uncertainty regarding the short- and long-term impact of tariffs
- Above-average stock market valuations following consecutive years of strong returns
- Concerns about inflation and related Federal Reserve actions
- Market concentration, with an outsized portion of returns being driven by only a few large-cap technology stocks
- Policy shifts and regulatory changes under the current administration
This last point warrants some discussion and perspective.
It is no secret that America has become ever more politically divided. Every election for the last 25 years has been framed as “the most important election of our lifetimes.” In Vermont, only 32% of votes cast were for President Trump (the lowest percentage of all the states by a considerable margin). Given this, it’s understandable that many of you have expressed concerns about what the next four years might bring.
History has shown that there is not a strong link between which party sits in the Oval Office and longer-term market returns. Recent history has been no exception. The stock market saw strong and remarkably similar returns during Donald Trump’s first four years and Joe Biden’s time in office, despite obviously major differences in ideology and policy initiatives. The takeaway is that a multitude of forces drive both markets and economic growth over time, and most of those do not reside in Washington, D.C. Certainly, there are policy decisions administrations can undertake that affect markets. During President Trump’s first term, broad-based tax cuts led to an increase in disposable income for most Americans and a reduction in corporate tax rates. During Biden’s administration, major domestic spending bills were passed with many far-reaching goals, chief among them revitalizing aging and outdated infrastructure. Both of these were forms of fiscal stimulus, both were well received by financial markets, and both added to our country’s growing debt.
Reasonable people can disagree about the appropriate size of the federal government and the necessary tax revenues needed to fund it. Regardless of your political views, it’s clear that America is on an unsustainable spending path. Our latest annual deficit was almost $2 trillion, and our accumulated national debt exceeds $36 trillion. The annual interest on that debt alone (over $800 billion in the last fiscal year) is on par with what we spend on Medicare and defense and is exceeded only by Social Security ($1.5 trillion). Our current debt-to-GDP ratio is about 120%. Twenty years ago, it was roughly half of that. This is a serious crisis that affects us all and one that should demand every nationally elected politician’s attention. There are not going to be easy answers, as efforts to cut costs or raise additional tax revenues will understandably be open to criticism. However, the goal of a more balanced budget and a reduction of outstanding debt is a laudable and necessary one.
Despite current challenges, there are reasons for optimism.
Supply chain disruptions from the pandemic have largely subsided. Inflation has moderated, and long-term interest rates have reset to a level that should be supportive of more normally functioning financial markets. GDP and employment levels remain healthy, and the recent market selloff has brought down valuations from their previous highs, potentially creating opportunities for investors.
As always, we stand ready to answer any questions you may have or to discuss your concerns in greater detail. We also encourage you to speak or meet with your advisor at least annually so that we can be sure your investment ‘winter tires’ are still appropriate for your individual situation. We take seriously the trust you have placed in us and will continue to do our very best on your behalf.
Thank you for reading our Newsletter!
Sincerely,
The Broadlake Financial Management Team
