Expert Insights

April 2025 market update: Tariff and investment insights Rising tariffs, market swings, and policy shifts fuel economic uncertainty—discover how diversification can help investors stay grounded. Former European Central Bank President Mario Draghi once described the challenge of decision making amidst ambiguity as: “You just do what you think is right and you temper…. In other words, in a dark room, you move with tiny steps.” For business leaders and investors, the economic landscape has appeared murky of late, and for good reason… The threat of tariffs has become a reality, not just a negotiating tactic, causing uncertainty to pervade expectations for the economy and markets. President Trump just rolled out his most expansive round of global tariffs yet, at levels worse than anticipated ahead of the April 2 announcement. Although USMCA-compliant goods—like dairy and sugar imports from Canada and Mexico—will continue to enjoy a 0% tariff under the trade agreement, non-compliant goods will be subject to higher tariffs. Other countries, including major U.S. trade partners such as China, Taiwan, Vietnam, India, and South Korea, will face significant tariff rates on exports to the U.S., all apparently over 20%. China has notably retaliated against the imposition of tariffs, levying their own 34% tariff on all imports from the US, matching the level of the White House’s reciprocal tariffs on Chinese products. Federal Reserve Chair Jerome Powell has warned that the impact of new tariffs is likely to be significantly larger than expected and could cause higher inflation as well as weaker growth. Read: Making sense of market volatility The state of economic uncertainty But uncertainty isn’t just showing up in market action—it’s in all kinds of data sets. To track uncertainty, researchers create indices that analyze both news reports and economic forecasts, using data to measure the extent of uncertainty. Two key measures—Headline Policy Uncertainty and Trade Policy Uncertainty (shown above)—reveal that economic uncertainty has climbed to its highest levels since the pandemic. Trade policy, specifically, has jumped to levels never before seen in as long as there has been available data, going back to 1960. As the economy shows signs of slowing (growth in Q4 of 2024 was +2.3% compared to +3.1% in Q3, and +3.0% in Q2), the ripple effects of uncertainty are showing up in key indicators of consumer and manufacturer sentiment. In the first quarter of 2025, the University of Michigan’s Consumer Sentiment Index for employment conditions nosedived to levels last observed during the global financial crisis of 2008. U.S. equity markets have clearly taken notice. The S&P 500 has sold off sharply, and even other risk assets such as crypto have plummeted. And, all of the Magnificent 7—the cohort of megatech stocks, including Amazon, Apple, Meta, and Google—have slid over 20% from the latest 52-week high. So, what does this mean for the market While markets have taken a shellacking so far this year, international stocks have served as some consolation. Year-to-date, international developed market stocks have outperformed their U.S. peers by over 10 percentage points. After U.S. stocks outpaced global markets in 2024, the tariff turbulence, as well as more attractive valuations and new stimulus measures from China and Germany, have flipped the script in early 2025. What does this mean for investors Diversify, diversify, diversify. While this kind of noise around trade policy isn’t normal, the market experiencing bouts of volatility is normal and something investors are required to manage over time. Although other asset classes, like international stocks and bonds, have not matched the performance of U.S. stocks in recent years, these assets can help dampen volatility in a period of heightened uncertainty. Diversification can help investors avoid being tied to any individual stock, asset type, or even a country’s performance. For example, the Betterment Core portfolio is globally diversified and has delivered 9.0% annual returns (after fees) since inception.1 Although the future might seem more unknowable right now, one thing we do know is that trying to time the market as policies change is a fool’s errand. Our investing team is here to keep you up-to-date on macro-trends and market insights, so you can make informed decisions for your clients. As of 12/31/2024, and inception date 9/7/2011. Composite annual time-weighted returns: 12.7% over 1 year, 7.9% over 5 years, and 7.8% over 10 years. Composite performance calculated based on the dollar-weighted average of actual client time-weighted returns for the Core portfolio at 90/10 allocation, net of fees, includes dividend reinvestment, and excludes the impact of cash flows. Past performance not guaranteed, investing involves risk.

2025 stock market outlook: 3 insights from a financial expert Our financial expert weighs in on investing amid market highs, AI optimism, and political uncertainty—and why diversification is key. Investors are starting to feel a healthy dose of cognitive dissonance, otherwise known as that grating feeling when two beliefs you hold don't quite line up. On one hand, the U.S. market is soaring on the back of AI optimism and potential tax cuts. And on the other, companies’ stock prices, relative to their actual earnings, are starting to loosely resemble the run-up to the Dotcom bubble of the late 90s. So which belief will win out in 2025: boom or bust? Let's parse this conflicted outlook by examining three questions in particular: Are U.S. stocks overvalued? Will AI pan out? Do markets care who’s in the White House? Are U.S. stocks overvalued? Around this time last year, we said the booming market at the time might keep going if the Fed lowered interest rates in response to cooling inflation. Interest rates did tick down, and boy, did markets take notice. Through the end of November 2024, stocks in our Betterment Core portfolio returned roughly 17.6% year-to-date. Such a run, however, begs speculation of yet another reversal, a swing of the pendulum toward less frothy valuations and a drawback in portfolio returns. The S&P 500 currently costs about 25 times more than what those companies are expected to bring in over the next 12 months. For comparison, this average “price-to-earnings” ratio over the last 35 years has been 18x. While stocks in the US certainly appear flush in terms of the value assigned to them, perspective matters for the long-term investor. When companies go for more than their “intrinsic” worth, there’s more potential downside than when they don’t. So long as one invests for more than a few years, chances are the market as a whole may “grow” into its valuation. Remember in 2021, when a cohort of stocks were darlings of the pandemic period and shot to the moon? Analysts rightly called foul—those kinds of valuations shouldn’t be sustainable. But within a few years the market was setting fresh all-time highs. An investor who had sold or stayed on the sidelines would've missed out on all that growth. If there’s a lesson to learn here, let it be this: Historically, Investing at all-time highs hasn’t resulted in lower future returns compared to investing on any given trading day. On the contrary, buying when the market has never been higher leads to slightly higher average returns in the long run. You can never be sure exactly when a growth cycle will end. Will AI pan out? Speaking of the stock market reaching previously uncharted heights, another reason for this bullish spell has been optimism surrounding the potential value of artificial intelligence, and the infrastructure that powers these underlying models. Large tech companies that provide cloud services—like Nvidia, which furnishes hardware that powers AI—have rallied strongly over the last 12 months. This clique of stocks, which overlaps with a group of mega-sized firms known as the Magnificent Seven (Google, Amazon, Microsoft, Meta, Apple, Tesla, and Nvidia), makes up an increasingly large share of the US and global stock market. So, what does the Mag7’s outperformance, and the hoopla around AI mean for the future? Some say a bubble, some say the early innings of a fully-automated techno-utopic future. Analysts have argued that a good amount of corporate America’s investment in AI capabilities will not ultimately prove fruitful. Yet it remains difficult to use the technology, and to witness the pace with which it has evolved, and not foresee eventual significant boosts to the economy’s productivity and companies’ profitability. There’s that grating feeling again—the potential of revolutionary upside sitting right next to worries that it’s mostly hype. In the face of uncertainty, all one can do to lower their risk is hedge their bets and diversify. Betterment’s Core portfolio, as well as our other portfolio options, invest globally, which means that while they maintain significant exposure to large US stocks including the Mag7, they also hold European, Japanese, and emerging market stocks that trade at less elevated valuations, providing a buffer in the event of a U-turn in the AI juggernaut. Do markets care who’s in the White House? Right now, markets aren’t sure exactly what to make of President-elect Trump’s proposed economic agenda. Promises of corporate tax cuts, while fueling the recent surge in stocks, could in practice increase inflation. Same goes for tariffs and mass deportation. Stricter immigration policies could simultaneously worsen labor shortages in certain industries, constraining economic growth and keeping inflationary pressures elevated. And, rising inflation could in turn pause or reverse the recent trend in interest rate cuts. But until more details emerge, or the policies themselves are actually put into practice, we won’t know their full effect. Despite the policy uncertainty and cognitive dissonance, keep in mind that markets tend to rise over time, regardless of which party holds the presidency. Maintaining a consistent, diversified investment approach is the best way to navigate political and economic cycles. So what now? As always, the risks associated with a down cycle exist alongside the opportunity of a growth cycle, so err on the side of staying invested. And, if you find your clients are sitting on too much cash, now might be the time to act and put it to work in the market. You can also recommend they invest it as a lump sum, which research shows may offer higher potential returns over time. Or, sprinkle it into a portfolio over time. (We make it easy to invest funds from Cash Reserve account, either way.) And however the market performs in 2025, you should remain confident that investing can help your clients reach their financial goals in the long-term.

How Gen Z and Millennial advisors balance AI risks with tech growth The financial advisory industry is undergoing a transformation. Shifting demographics, rapid technological advances, and economic volatility are reshaping how advisors work and who they serve. With a new generation of RIAs entering the profession and younger clients making up a growing share of the market, new perspectives are emerging—on the economy, on technology, and on the very role advisors play in managing investments. Perhaps the most indelible shift of all, is the accelerating pace of AI, requiring advisors to revise how they deliver value to the next generation. In the second installment of our Advisor Survey, Betterment Advisor Solutions spoke to 500 independent RIAs, to find out how financial advisors are responding to the shifting financial planning landscape. Not surprisingly, many advisors (53%) report using AI to stay current with industry updates. And that’s not all, adoption of AI tools has climbed 10% since this time last year. However, the majority of advisors (65%) say they are worried about clients turning to generative AI platforms for financial advice. While AI is already making advisors’ lives easier, it also presents new challenges around client trust, accuracy, and the role advisors play in managing their clients’ wealth. How advisors are using AI As financial advisors wrestle with the paradox of AI, there are some areas we’re seeing Gen Z/Millennials and Gen X/Baby Boomers agree on: AI over social: 53% of advisors now use AI to stay current with industry updates, surpassing social media (48% in 2025, down from 59% in 2024). Positive impact: Overall, advisors are mostly positive about AI's impact, with more Gen Z/Millennials being "very positive" (45%) than Gen X/Baby Boomers (37%). Client misuse: While advisors are finding important use cases for AI in their own work, they’re concerned about clients using AI for financial advice (65%). Their top concerns are the lack of regulation and oversight in Generative AI providing financial advice, increasing the likelihood that clients will misinterpret or receive inaccurate financial advice from Generative AI platforms. But from there, key differences divide younger and older generations. For instance, Gen Z/Millennials tend to lean into AI for administrative tasks (like note taking and meeting recaps) as well as fraud detection; whereas Gen X/Baby Boomers use it more for client communication and portfolio management. The generational divide in AI adoption reveals that the technology is being shaped by client needs, not necessarily by advisor preferences. – Dan Egan, VP of Behavioral Finance and Investing at Betterment As digital natives, younger financial advisors have deeper concerns about the omnipresence of AI and so-called “ChatGPT financial advisors.” Although they might be more cautious about how AI is used, our survey shows that these advisors are perhaps better equipped to manage the financial planning needs of the Gen Z/ Millennials clients, who are looking for a seamless, modern way to manage their money. The way advisors balance caution with innovation will reshape the financial planning journey. To dive deeper into how RIAs across generations are viewing AI, technology, and shifting client expectations, download our latest survey below.