Stocks

Three burning questions for the market in 2025 Are U.S. stocks overvalued? Will AI pan out? Do markets care who’s in the White House? Investors are starting to feel a healthy dose of cognitive dissonance—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, a 90% stock 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. Taking the perspective of a long-term investor, however, these ratios matter less than you may think. So long as you stay invested for more than a few years, chances are the market as a whole may “grow” into its valuation. Remember 2021 when a group of tech-centric, risky stocks were darlings of the pandemic 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. So if you’re tempted to sell “high” right now, remember this: On average, 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? A big driver of this bull market has been optimism surrounding artificial intelligence and the big tech companies powering it, like Amazon, Google, and the computer chip-maker Nvidia. They’ve rallied big-time over the last 12 months, and as a result, they make up an increasingly large share of the U.S. and global stock market. A debate, however, surrounds their outperformance and the hoopla around AI in general. Some analysts argue that a good amount of AI investment won’t ultimately prove fruitful, while others foresee significant boosts to productivity and profits. 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. Our portfolios’ stock allocations take this to heart, offering significant exposure to Big Tech, while also investing in European, Japanese, and emerging markets. It’s these less expensive equities that provide a potential buffer in the event AI’s ambitions fall short. 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. 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. Instead of sitting back and anxiously waiting, we suggest taking a look at the chart below. It shows 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. That, and maybe cooling it a bit on your news consumption. So what now? As always, it’s impossible to know exactly how long each growth cycle will last, so consider erring on the side of staying invested. If you find yourself sitting on too much cash, now might be the time to put it to work in the market. You can invest it as a lump sum, which research shows may offer higher potential returns. Or you can sprinkle it into a portfolio over time. Most importantly, however the market performs in 2025, we suggest zooming out and reminding yourself you’re in it for the long haul.

Self-directed investing, the Betterment way See what makes Betterment’s self-directed investing different from the rest. Plus, get three tips to help develop your own investing strategy. Key takeaways We surveyed our customers and learned that 75% of them use self-directed investing elsewhere, but many want it alongside their automated investing—so we built it the Betterment way. With Betterment, you can invest your way, buying and selling thousands of stocks and ETFs with no commissions. Manage your automated portfolios, cash accounts, and self-directed trades together on one platform for a fuller view of your finances. Unlike other investing apps, Betterment’s tax impact preview lets you see the impact of a sale before you trade, so there are no tax surprises. Invest smarter with these three tips: set clear goals, plan for taxes, and keep emotions out of your investing. Recently, we surveyed our customers and learned that 75% of them use some form of self-directed investing. That was eye-opening. While our automated investing tools are designed to take the work out of wealth building, many people still want the option to pick and manage certain investments on their own. So we asked ourselves: how can we bring self-directed investing to life—the Betterment way? Our answer: combine our award-winning platform with a customer-first experience to let you buy and sell thousands of stocks and ETFs with no commissions. With Betterment’s self-directed investing, you’ll get more investing choices, the ability to see all of your investments in a consolidated place, and tax insights you won’t find anywhere else. Investing your way, all in one place Not everyone invests for the same reason. We know this because we continually solicit feedback from our customers. Some customers told us they want to invest in companies they believe in. Others find it intellectually rewarding to follow markets and make trades. And many simply like having more control over their portfolio. With Betterment’s self-directed investing, you can get that flexibility while keeping everything on one platform. Manage your automated portfolios, cash accounts, and self-directed trades side by side, with technology designed to give you a clear view of your financial life. Tax insights you won’t get anywhere else Here’s where we’re really different than the typical “stock trading” platforms. Self-directed trading often means more frequent buying and selling, which can bring a hefty and unexpected tax bill at the end of the year that catches people off guard. In fact, when we asked our customers about their biggest challenge with self-directed investing on other apps, the top answer was “managing tax implications.” We solved that challenge. At Betterment, you’ll see a tax impact preview before you sell a stock or ETF. That preview includes how the sale could affect your taxes, and even potential wash sales. A wash sale occurs when you sell a security at a loss and then repurchase the same or a substantially identical security within 30 days before or after the sale, disallowing the tax deduction for that loss. With our tax impact preview, there are no surprises or guesswork. Just clear tax insights to help you make smarter decisions. (See how tax impact preview works.) Three tips to get started with self-directed investing Self-directed investing provides you with the choice to invest your way. But you get to decide what “your way” means. To help, here are three steps to get started: Have a clear goal before you trade: Don’t just buy because something looks hot or is in the news. Ask yourself: Am I investing for long-term growth, short-term income, diversification, or some other reason? Having a clear purpose can help you avoid making impulsive trades. Think about taxes before you sell: Selling a stock or ETF can trigger capital gains taxes. Short-term gains (for investments held less than a year) are usually taxed at a higher rate than long-term gains. Using tools that preview your tax impact before you trade—like Betterment’s—can help you avoid surprises. Avoid emotional trading: Markets move fast. It’s easy to panic-sell when prices dip or chase a stock that’s soaring. Instead, set rules for yourself—like only initiating a trade at pre-set price targets or sticking to a dollar-cost averaging plan—so emotions don’t dictate your decisions. Plus, at Betterment, your trades are queued for execution and not made immediately, but they are made in a timely manner, limiting your ability to try to “time the market.”