Reflections on 2025 and the Investing Road Ahead

“The first law of compounding is to never interrupt it unnecessarily.” … Charlie Munger

We firmly believe that the cornerstone of financial success is a wealth management plan designed to help you accomplish what is most important to you in life. Your Sterling team maintains your unique wealth management plan in our sights always as we assess your personal goals and needs as well as the circumstances in the world around us.

Your wealth management plan is part advanced financial planning initiatives and part thoughtful investment planning. As we continue to be confronted by an ever-changing environment, know that your Sterling investment portfolio continues to be guided by our disciplined, evidence-based strategy and shaped by what matters most to you…not by predictions about where the economy or markets might head next. This has been our north star, and it will remain so throughout 2026 and beyond.

How We Think About Your Wealth

At Sterling, we are long-term, goal-focused investors who believe in a simple truth: the only reliable path to capturing equity returns is staying invested through the inevitable ups and downs. History has proven this time and again. We don’t believe the economy can be consistently forecast, or markets reliably timed. Through experience, we have learned that markets often ignore economic developments we’d expect them to care about deeply…and react violently to news we’d think should barely register. There’s no predictable pattern, which is why we don’t chase one.

Instead, we focus on what we can control: building broadly diversified portfolios of quality companies, maintaining discipline during volatility, and letting compounding do its quiet, powerful work overtime. As long as your goals remain unchanged, our plan for achieving them stays constant. Your portfolio changes only when it should…through thoughtful rebalancing, not reactive market timing.

What Happened in 2025

The global equity markets delivered the third consecutive year of double-digit returns, fueled by robust economic growth and expanding corporate earnings. In 2025, the S&P 500 finished up nearly 18%, and the MSCI All-World Country Index (ex-USA) was up around 30% for the year.

If you read just the headlines – which can often trend toward the negative – you may have missed some of the more positive economic outcomes in the last year. A few of them we have highlighted below:

Solid Earnings for U.S. Companies – Company earnings growth has been strong, with profit margins expanding to 13.1% in the third quarter of 2025…the highest in 15 years according to FactSet. Many expected inflation and cautious consumers to squeeze margins.

Productivity grew in the U.S. – The labor market softened slightly, with unemployment ticking to 4.7% for the year. Typically, when economic output rises while hiring stays flat (meaning unemployment is fairly low), it means the 95%-plus of Americans who are working are producing more per hour. That’s how companies can raise wages without triggering inflation.

Monetary policy eased significantly – The Federal Reserve cut rates six times, lowering them 175 basis points (or 1.75%) from a year ago. Typically, one would expect the lagged benefits of this easing to support economic growth.

Tax changes could boost refunds – According to the Oxford Economics Report, changes in the tax code for the 2025 tax filing year could increase refunds and lower tax bills by as much as $50 billion, largely due to a higher standard deduction and the temporary SALT cap increase to $40,000 for many Americans. (Note: This increase will begin to phase out for joint and single filers once Modified Adjusted Gross Income is $500,000, for filers married filing separately the phaseout starts at $250,000 MAGI)

Unfortunately, it is easy to miss the positive when looking at the day’s news…negative headlines capture attention. But for us as investors, this asymmetry contains useful information: when everyone is anxious, opportunity often follows.

The Questions Everyone’s Asking

Throughout 2025, the burning question was (and still is as we write): “Are we in an AI bubble?”

In 2024, the question was “When will the Fed cut rates?”

And before that, “Will there be a recession?”

The universal burning question is almost always the wrong question. It’s a distraction from what actually matters: staying invested in quality companies through a well-diversified portfolio aligned with your goals.

Yes, the equity market has become more concentrated in a handful of mega-cap technology stocks than we’ve seen in our investing lifetimes. Not all of them will win the AI race. And yes, valuations are elevated by historical standards.

Our response is straightforward: valuation has never been an effective market timing tool (there really isn’t anything that has consistently proven to be an effective market timing tool). Expensive markets can get more expensive, and cheap markets can get cheaper. What matters is time in the market, not timing the market. Portfolio rebalancing will address concentration naturally and systematically…exactly as designed.

What to Expect Next

The next significant market shock is coming…it always does, with frequency. It may likely emerge from somewhere unexpected (what strategists call an “unknown unknown” rather than a “known unknown” like high valuations). And like every shock before it, it will have little to do with the long-term success of disciplined investors beyond creating potential opportunities.

We’re following a plan that has worked across decades, market cycles, and countless crises. At Sterling, we call this “weatherproofing”. We don’t believe “this time is different”…regardless of what “this” happens to be. Two behaviors are central to this perspective: (1) we don’t panic into cash during selloffs, and (2) we don’t bet the ranch on “new era” miracles. We stay the course because history shows that’s what works.

Looking Ahead Together

We wish you and your family a healthy, happy, and prosperous 2026. Our team is honored to be your partner on this journey…acting as your family CFO across all aspects of your financial life…we’re here whenever questions or concerns arise.

Thank you for the privilege of serving you. We’re grateful for your trust and excited about what the year ahead holds.

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This article is for informational purposes only and does not constitute investment advice. Past performance is not a guarantee of future results. All investments involve risk, including possible loss of principal. International investments involve additional risks, including currency fluctuations and political instability.