Farewell to the Smooth Ride for Stocks. How to Prepare Your Portfolio for a Bumpy 2025

As we approach the end of 2024, investors are bracing for a more volatile market landscape in 2025. The incoming Trump administration's policies, geopolitical risks, and the Fed's rate-cutting cycle are expected to drive market volatility. To navigate this challenging environment, investors must prepare their portfolios and adopt a strategic approach to investing.

1. Incoming Trump Administration's Policies: The incoming Trump administration's policies, such as trade dynamics and government spending, are expected to add new variables to the Fed's data-dependent approach to monetary decisions, potentially increasing market volatility in 2025. A Deutsche Bank Research survey found that investors think a global trade war poses the biggest risk to market stability in 2025. Rick Rieder of BlackRock expects emerging policies under the next White House to bring about higher prices and significantly slow economic growth. Investors should prepare their portfolios for increased market volatility by diversifying across asset classes and sectors, including under-owned energy stocks, and maintaining a balanced mix of growth and value stocks.

2. Geopolitical Risks: Geopolitical risks, including potential changes in immigration policies, are expected to contribute to market volatility in 2025. According to Rick Rieder of BlackRock, the incoming White House administration's policies, such as trade dynamics and government spending, will add new variables to the Fed's data-dependent approach. Deutsche Bank Research survey found that investors think a global trade war poses the biggest risk to market stability in 2025. Rieder expects emerging policies under the next White House to bring about higher prices and significantly slow economic growth. Therefore, investors should prepare their portfolios for increased geopolitical risks by diversifying across asset classes and sectors, including under-owned energy stocks, and maintaining a balanced mix of growth and value stocks.

3. Fed's Rate-Cutting Cycle: In 2025, market volatility is expected to rise as the Fed's rate-cutting cycle slows and new policies under the incoming White House administration take effect. According to BlackRock's Rick Rieder, the range of possible outcomes from potential policies is "very wide," with "unpredictability too high" (Source: Morningstar, 2024-12-18). The Fed may slow its pace of rate cuts in 2025 as markets watch the oval office, potentially leading to a more volatile market environment. Investors should prepare for this by diversifying their portfolios, focusing on stable, enduring companies, and being selective about tech stocks, as rising interest rates may lead to temporary sell-offs of best-of-breed companies like Amazon and Apple.


In conclusion, investors should prepare their portfolios for a bumpy 2025 by diversifying across asset classes and sectors, maintaining a balanced mix of growth and value stocks, and focusing on stable, enduring companies. By adopting a strategic approach to investing and staying informed about market trends, investors can navigate the challenges of a volatile market landscape and position their portfolios for long-term growth.