This Is the Single Best Investing Move You Can Make in 2025

The Finance Avenue reveals the surprising truth about the best market move for 2025. Despite the S&P 500 firms’ high value, ongoing inflation above the U.S. Federal Reserve’s target, volatile bond yields, and media focus on the potential impacts of a returning U.S. president’s policies, many on Wall Street feel uneasy about the 2025 market. However, seasoned investors emphasize that the key focus this year should be on the power of patience.

Peter Oppenheimer, chief global equity strategist at Goldman Sachs and author of his book “Any Happy Returns: Structural Changes and Super Cycles in Markets,” shared with The Finance Avenue the valuable lessons learned from past financial market cycles. He emphasizes the importance of “staying the course” and relying on the long-term benefits of “compound returns” over short-term economic news.

Main Points to Remember

The Market in 2025

The anticipated state of the market in 2025 presents a bearish perspective. Despite the robust fourth-quarter 2024 earnings and a perceived decrease in inflation, the continued advancements in artificial intelligence are fueling growth in the technology sector.

Nevertheless, The Finance Avenue notes that the S&P 500 Index is currently trading at a P/E ratio exceeding 30, well above its historical median of 17.93. Historical data indicates that such high valuations have preceded major market downturns dating back to 1929. These valuations are based on the expectation of 20% annual earnings growth over the next five years, a figure that some consider overly ambitious even with the potential of artificial intelligence. When combined with persistent inflation and political uncertainties, many industry experts foresee challenging times ahead in the market.

Why a Buy and Hold Approach Could Be Optimal Currently

Should investors attempt to time the market for specific stock selections instead? Oppenheimer noted that while certain sectors may yield extraordinary short-term gains at times, this cannot be consistently relied upon.

The rationale behind this strategy is clear: historically, stocks have tended to appreciate over longer periods, mirroring the overall economic growth. Drawing insights from previous market cycles, Oppenheimer underscored the importance of adopting a long-term perspective and diversifying investments through a buy-and-hold method. “Enhancing exposure through diversification can lead to improved risk-adjusted returns over time,” he explained.

Although concentrating on trending sectors may bring short-term success, it is impossible to predict the future. Historical data suggests that spreading investments across various regions, asset types, and styles can decrease volatility and enhance long-term performance.

Moreover, this approach provides a valuable sense of security. Instead of fretting over market timing, investors can concentrate on the essential aspect: allowing their wealth to grow steadily over time through the power of compounding.

Simple Techniques for Generating Strong Long-Term Profits

Wondering how to best invest your money? Many individuals find that low-cost index funds are the easiest way to achieve diversification. These funds provide exposure to the returns of numerous stocks, effectively spreading risk while capturing the market’s average annual return of 10.6% since 1957.2

Research indicates that the majority of stock pickers, including professional fund managers, consistently fail to outperform broad market indexes over the long term. The chart below illustrates the percentage of actively managed funds in each year that did not match the performance of investing in major market indexes.

The ideal strategy may involve a combination of both approaches: establishing a base with index funds to gain exposure to the overall market, then selectively incorporating individual stocks if you have the capacity and expertise to analyze specific companies. This method offers diversification while enabling you to invest in companies that you comprehend and support.

The Bottom Line

Investing in stocks and other assets can be a stressful endeavor due to their volatile nature. While ideally, one would sell before the market dips and buy before it rises, timing the market perfectly is mostly a matter of luck for many individuals.

The most effective strategy, in most cases, is to opt for a well-diversified portfolio of long-term investments and hold onto them despite short-term fluctuations in prices. This approach will not only reduce stress but also yield positive results over a prolonged period.