A New Year, A New Market: How Did Investment Classes Fare in January?
Following a strong 2024, investors are eager to see how different asset classes performed in the first month of 2025. To gain a practical understanding of market performance, we’ll delve deeper into how major investment classes fared in January, using key data points from Exchange Traded Funds (ETFs). These ETFs track indices for various asset classes and include expenses, making them a more realistic gauge of actual investment returns compared to indices themselves, which don’t factor in expenses. Let’s analyze the January 2025 returns across various investment categories.
Stocks: Strong Returns Continued
- Large-Cap U.S. Stocks: The U.S. stock market, as represented by the IWV (which covers 98% of the market), posted a solid 3.1% return for January. Large-cap stocks, tracked by VOO, delivered a 2.7% return, indicating a positive start to the year for this segment of the market. Value stocks, tracked by VTV, outperformed with a 4.4% gain, while growth-oriented technology stocks, represented by QQQ, lagged slightly with a 2.2% return.
- Small-Cap U.S. Stocks: Small-cap stocks, tracked by IWM, delivered a 2.5% return, indicating continued positive momentum in this segment of the market.
- International Stocks: International developed markets (ex-US), represented by SPDW, showed a strong 4.4% return, outperforming emerging markets, which gained 2.2% as tracked by EEM.
Bonds: Steady Returns
- Total Bond Market: The overall bond market, represented by BND, provided a 0.6% return for January.
- Other Bond Categories: Intermediate-term bonds (VGIT) and short-term bonds (SCHO) also delivered returns in line with the broader bond market, yielding 0.6% and 0.7%, respectively. Inflation-protected bonds (VTIP) slightly outperformed with a 1.0% return.
Alternatives: Real Estate and Commodities
- Real Estate: Real estate, tracked by VNQ, continued its positive trend with a 1.7% gain for the month.
- Commodities: Commodities, represented by DBC, had a 2.8% return, showing signs of recovery after a period of limited growth.
Diversified Portfolios: The Power of Balance
Diversified portfolios, which blend stocks and bonds, delivered returns that generally align with their underlying asset allocation. For instance, AOA (80% stocks, 20% bonds) gained 2.4%, while AOK (40% stocks, 60% bonds) returned 1.3%.
Looking Ahead
January 2025 provided decent returns across asset classes, with large-cap value stocks and international developed markets leading the way. The Federal Reserve’s efforts to curb inflation seem to be working, but it remains to be seen how these policies will impact market performance in the coming months. As always, maintaining a well-diversified portfolio aligned with your risk tolerance and investment goals is crucial for navigating the ever-changing market landscape.