We are happy to report on another very successful year in our shared pursuit of your most cherished lifetime financial goals. Our plan and our portfolio continue to be driven by those goals, rather than by prognostication around the economy or the markets, and this will be the case throughout 2025 and beyond. Frank, Tom, and Lindsey are eager for another exciting year filled with opportunities in the market and meaningful ways to support the families we serve.
In this letter, we will begin with a few comments about the current economic/financial backdrop. We will proceed to our remarks regarding our expectations for the coming year and end with a restatement of some our core beliefs.
CURRENT COMMENTARY
Powered largely by a very few of the very largest technology stocks, the past year was another exceptionally good one for the diversified equity investor. As the year ended, the market gave evidence of broadening out to some extent. That would certainly be welcome.
The presidential election result was at least clear and uncontested. The economic backdrop continued to be favorable, and the job market remained strong, though showing signs of cooling due to relatively stringent monetary policy. Corporate earnings and dividends reached record highs and are expected to increase further in 2025.
If anything, late in the year many investors feared that the equity market had gotten ahead of itself, as evidenced by somewhat stretched valuations. Since valuations have never proven to be a reliable timing tool—any more than anything else has—we encouraged clients to just keep on keeping on with their plan.
Inflation has not gone away. Nor, as Fed Chair Powell observed in mid-December, is it going away. A frothy market took this statement rather badly, as indeed it should have, in our opinion. And while the fiscal condition of the United States remains undeniably appalling, the consumer is (perhaps surprisingly) in very good shape. The household debt service ratio (debt payments as a percentage of disposable personal income), at 11.30% in the third quarter of 2024, is near 40-year lows .
It doesn’t seem reasonable to suppose that the broad equity market can go on indefinitely compounding at the nearly 16% that the S&P500 has been producing annually since the March 2009 Global Financial Crisis lows . Nor do we need it to, as we should keep in mind that the behavior of the market and the ideal long-term rate of return for the realization of our most important goals are almost never the same.
LOOKING AHEAD
In our view, the second-most stressful time in the work of a financial advisor is the final leg of a bear market decline, just before the bottom. In this time, the depths of panic can cause investors to lose their long-term focus and discipline, driving them away from their financial plans. Recall that PRICE and VALUE are not the same thing and are often opposites. In bear markets, the enduring value of great companies often diverges sharply from the panic-driven plunge of their stock prices. As prices collapse, the intrinsic value of a successful business becomes increasingly attractive while negative emotions push investors away from these attractive values. Panic selling is crippling towards the cherished goals that we are working towards.
If investing is an emotional rollercoaster, this is the second worst part of the ride. In our experience, the worst, most dangerous time for most investors is the time that we are in right now as we enter 2025. Several consecutive years of very strong returns, largely concentrated in a single familiar geography and sector, have begun to cause some investors (who may have, long ago, sworn allegiance to diversification and asset allocation) to wonder why we ought to bother with fixed income, international companies, small companies, or value stocks. Some may even wonder why they own anything but the handful of rock-star mega-cap American technology companies that dominate the headlines.
We must call this by its name: performance-chasing, also known as “FOMO” (fear of missing out), and sometimes even “greed”. If an investor is seriously interested in buying something because it has doubled or tripled in value over the past year, that is performance-chasing. Virtually no portfolio strategy more reliably produces bad returns than performance-chasing. This is because, again, of the dichotomy between PRICE and VALUE. If the depths of a bear market are characterized by relatively low price and high value, then the height of a bull market is the exact opposite.
To make matters even more difficult, the current environment is also exactly the one in which rebalancing has the most beneficial long-term effect. This literally means selling some of the positions that have been red hot and reallocating those resources towards the (value-rich) laggards. “Buy low, sell high” is easy to say but hard to do.
To be clear: I doubt that anyone could be more bullish on the long-term power of capital markets to build wealth than we are. We fervently believe in the long-term potential of mainstream American equities and a deep appreciation for the many positive developments in our economy and markets. These include a remarkable surge in productivity, solid earnings visibility, and a vibrant job market—all complemented by an encouraging outlook. Nor does Acadium ever create or support investment strategy generated from forecasting or attempts to predict the future. The question is how a prudent investor with a long-term focus and a desire to avoid costly errors can embrace long-term optimism while resisting the emotions that lead so many astray.
It begins with one simple perception, captured as they so often are in the wisdom of Warren Buffett: “The investor of today does not profit from yesterday’s growth.” An investor may question why they own anything but the S&P 500 today. It is easy to understand why: at about 6,000 the Index is nearly nine times its closing level on March 9, 2009 . And from that low point until now, it has annually compounded at 16%. The important point is that the investor who buys today gets none of that.
Instead, he owns an Index priced at more than 22 times forecasted earnings for the next 12 months —a super high multiple. (For context, the multiple was around 10 at the 2009 market bottom.) Compounding this, the Index has never been more concentrated, with the ten most valuable stocks making up roughly a third of its total value. (Even during the dot-com bubble peak in 2000, this figure was just under 27%.) Very high prices are one concern, and extreme top-heavy concentration is another. Both things put together place us here, at the beginning of 2025, where the predominant risk is not emotionally driven selling but the only thing worse: emotionally driven buying.
Our advice is simple:
GENERAL PRINCIPLES
- We are long-term, goal-focused, plan-driven investors. Our core investment policy is to invest in broadly diversified portfolios of high-quality businesses. These portfolios are the servants to our financial plans, not the masters.
- We believe that the economy can’t be consistently forecast, nor the markets consistently timed. We conclude from this that the only practical way to capture the premium long-term return of equities is to ride out their frequent, sometimes significant but historically always temporary declines.
- We do not react to economic or market events. As long as your long-term goals remain unchanged, so will our plan for the achievement of those goals.
- We recognize that emotions are powerful and can be dangerous towards investing. Accepting this and steadying oneself against them is the most significant advantage any investor can have for themselves and their loved ones.
Our relationships with our clients continue to be the great joy of our professional lives. Frank, Tom, and Lindsey wish all our clients and friends—because to us they’re the same—a healthy, happy, and mightily prosperous 2025. We’re always here to answer your questions or address your concerns. If you’re approached by a friend, neighbor, or family member or if you know someone who needs to hear our message, please let them know that we will always find the time to listen, and we’ll do our best to help.
Thank you, more than we can adequately express, for being our clients.
It is a privilege to serve you.
Sincerely,
Frank Hujsa, CFP®, CLU®, CEPA®
Partner, Acadium Financial Partners
27499 Riverview Center Blvd, Suite 108
Bonita Springs, FL 34134
Lindsey Hansen, CFP®
Partner, Acadium Financial Partners
3601 PGA Blvd, Suite 301
Palm Beach Gardens, FL 33410
Thomas Udovich, CFP®
Partner, Acadium Financial Partners
3601 PGA Blvd, Suite 301
Palm Beach Gardens, FL 33410
Any opinions are those of Frank Hujsa, Lindsey Hansen, and Thomas Udovich and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. The information contained in this letter does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Securities offered through Raymond James Financial Services, Inc. member FINRA/SIPC. Acadium Financial Partners is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc.
Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Keep in mind that individuals cannot invest directly in any index. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals to successfully complete CFP Board’s initial and ongoing certification requirements.
I https://www.federalreserve.gov/releases/DSR/
II Dimensional Fund Advisors matrix book, 2024
III https://www.macrotrends.net/2526/sp-500-historical-annual-returns
IV https://ycharts.com/indicators/sp_500_earnings_per_share_forward_estimate