January Newsletter to Clients

Enjoy this month’s edition that features a summary of 2025 investment returns, predictions for 2026 and some information on a new savings option for children. 

Happy New Year! In honor of the Oracle of Omaha’s retirement as CEO of Berkshire Hathaway at the end of 2025, I’d like to start with one of my favorite Warren Buffett quips that seems appropriate after the Holidays. “I checked the actuarial tables, and the lowest death rate is among six-year-olds. So, I decided to eat like a six-year-old.” Me too, Warren, me too. 

2025 was a wonderful investing year that followed two terrific years. Here is where the major stock and bond indices finished up:

• S&P 500 of large, U.S. companies – up 16.4%;

• Russell 2000 of small, U.S. companies – up 11.3%;

• MSCI EAFE of international companies – up 31.24%;

• U.S. Aggregate bond index – up 7.3%.

Just for perspective, Bitcoin dropped 7.5% in 2025. 

Predicting the direction of the economy and the stock and bond markets is notoriously difficult, but that doesn’t stop Wall Street prognosticators from trying. Before we look at 2026 predictions, let’s examine how they did in 2025. 

Barron’s surveyed professional investors last May and, at that time, 32% of those surveyed were bearish (meaning they thought the stock market would decline through the rest of 2025), 26% were bullish (meaning they thought the stock market would increase) and 42% were neutral. Furthermore, 58% said the stock market was overvalued (meaning stock prices were too high for the amount of earnings companies were expected to produce) and 38% called stocks fairly priced. 

• The optimists surveyed expected the S&P 500 to end the year at about 6,000;

• The pessimists predicted the S&P 500 would end the year at about 5100; 

o The stock index closed at 6845.

Now, in their defense, the survey was conducted right after the new tariffs were announced and the stock market had reacted poorly to that news. That, however, is yet another lesson from Warren Buffett who borrowed this line from Rudyard Kipling and applied it to investing: “If you can keep your head when all about you are losing theirs….Yours is the Earth and everything that’s in it.” Translation: pay attention to your long-term goals and ignore the short-term noise. Incidentally, that is one of the ways Moneywatch adds value for our clients. 

For 2026, the consensus among brokerages and investment banks such as Goldman Sachs, Bank of America and Morgan Stanley is that the S&P 500 will rise 11% this year. Paul Hickey, founder of Bespoke Investment Group, has been compiling these predictions for years and found that since December 31, 2000, the Wall Street consensus has predicted annual gains – every single year. That, of course, did not happen. As recently as 2022, for instance, the market fell 19.4% although the consensus forecast called for a 3.9% gain. They only missed it by 23.3%. Through 2024, the market fell in seven of those 25 calendar years. 

As always, we’ll be making investment decisions that fit our clients’ specific goals and time horizons. 

For those of you with children under the age of 18, please note you can open what’s been named a Trump Account starting this year. These accounts must be opened by a parent or guardian and come with annual deposit limits of $5,000 for individuals. The accounts are similar to an IRA but must be invested in mutual funds or index funds that track broad equity benchmarks such as the S&P 500. Contributions can be made after July 4, 2026 and can’t be withdrawn before the child turns 18. 

For children born between January 1, 2025 and December 31, 2028, the U.S. Treasury will make a one-time deposit of $1,000. 

Beyond accepting the free $1,000 deposit, 529 accounts are probably better for college savings because of higher contribution limits and better tax treatment. In addition, UTMA (Uniform Transfer to Minors Act) accounts are good options for kids’ savings and learning about investing and they have better tax treatment, too. As always, please call us with questions. 

Thank you for your continuing confidence.