Cryptocurrencies, inflation, bonds: Investment Guide for Risk Years

Author:Suzanne Woolley , Bloomberg Business Weekly

Compiled by: Luffy, Foresight News

This year is full of variables. The AI ​​narrative that once pushed the U.S. stock market is being questioned; how the second Trump administration will affect the financial situation of ordinary Americans, and whether we will see inflation rising again, putting pressure on stocks and bonds, is almost no conclusion yet . In order to help everyone find direction during this unclear period, we asked investment experts for some major problems facing investors this year. Although this year is full of risks, it may also pay off if you have the right strategy.

**1. How likely is the S &P 500 index to fall sharply this year? How can

I prepare?**

Michael Cembalest, chairman of market and investment strategy at JPMorgan Asset Management, said the S&P 500 has risen by more than 20% per year in the past two years, a situation that has only happened 10 times since 1871. Cembalest expects stocks to rise by the end of this year, but he also said a drop of up to 15% could occur during the period, which he noted is not uncommon. The S&P 500 has fallen 10% or more in 60 years in the past 100 years.

Given the potential market volatility, a better question is: When do you need this money? Every decline will hit a new high, so if you can cash out again in a few years, you won't have any problems. Also, take a closer look at your asset allocation. It is not enough to just hold the S&P 500, because the top ten stocks (mostly tech stocks) account for about two-fifths of the index’s market capitalization, compared with only about one-quarter in 2000.

One diversified investment method is to buy exchange-traded funds (ETFs) that track weighted versions of the index, with each company accounting for about 0.2% of the value. "In the long run, it's a good way to avoid over-entering any current investment boom," he said.

2. Does the traditional 60/40 portfolio still have meaning?

Financial planners have long recommended portfolios of 60% stock and 40% bonds, which have provided good returns over the past few decades with much lower risks than holding stocks alone. However, the logic behind this combination (i.e. when stocks fall, bonds rise and vice versa) is completely invalid in 2022. As inflation soared, the Fed aggressively raised interest rates, and both stocks and bonds suffered a setback. In recent times, U.S. stocks and bonds have even fluctuated simultaneously.

More and more investment managers are suggesting that a portion of the 60/40 portfolio be allocated to so-called alternative assets—that is, private securities that are out of sync with the trends in open market assets. Increasing these assets may introduce new risks, but may also increase long-term returns. Sinead Colton Grant, chief investment officer at Bank of New York Mellon Wealth Management, said the company’s listing cycle is getting late, meaning open market investors are missing out on the higher returns the company has achieved in its early stages. "If you don't have private equity or venture capital channels, you'll miss out on opportunities." She believes that to replicate the performance of the 60/40 portfolio in the late 1990s, private securities assets should account for about a quarter of the portfolio.

Not everyone agrees with this view. Jason Kephart, director of multi-asset ratings at Morningstar, said that adding private assets to the 60/40 portfolio "increases complexity and expenses, and there are certain questions about the way valuation is." He said the advantage of the 60/40 strategy is its simplicity, making it "easier for investors to understand and stick to this combination for a long time."

**3. If I were a risk averse, is US Treasury worth investing in? Will

the Bond Guards return?**

Bond Guard refers to large investors who require higher yields in Treasury bonds to express their dissatisfaction with the government's excessive spending. While details of the new government's spending plan are unclear, there are concerns that the U.S. budget deficit will worsen in the coming years, which could mean higher Treasury yields are coming.

The current 10-year Treasury yield is about 4.6%, close to its 18-year high. So should investors seize this opportunity? Until recently, the company also tended to lock in yields on five-year Treasury bonds, said Leslie Falconio, head of taxable fixed income strategy at UBS Global Wealth Management. But she believes that given UBS expects growth to stay above the trend level but slows down and inflation will drop, buying is a good buy when the 10-year Treasury yield is close to 4.8% to 5%. Chance. As for the 30-year Treasury bond, she said: "In view of the current volatility and policy uncertainty, we believe that it is not wise to extend the investment maturity to 30 years at this yield level, and the risk is not proportional to the return."

Of course, a 4.6% yield may not seem like a high-yield savings account or one-year fixed deposit, as these products can also provide similar returns. But the interest rates of savings account may change at any time. As for fixed deposits, there is no guarantee that you can get the same interest rate when renewing the visa after maturity in one year.

4. How to protect my assets from rising prices?

President Trump has pledged to "beat inflation", but at the same time he is pushing for tariffs and tax cuts that could exacerbate inflation. Amy Arnott, Morningstar portfolio strategist, said rising prices may not be a major concern for investors in their 20s and 30s, as wages should keep up with price growth over time, while stocks are generally worth more than Inflation grows faster. "In the long run, stocks are one of the best hedge tools to fight inflation."

Those who hope to retire in the next decade can consider specialized inflation hedging tools, such as commodities. Arnott said diversified commodity funds could include oil, gas, copper, gold, silver, wheat and soybeans. Few of these funds have performed well lately, so if you choose one, Arnott recommends comparing risk-adjusted returns for such investments rather than focusing on absolute performance.

For retirees or those planning to retire soon (who can’t offset inflation with a pay raise), Arnott recommends buying U.S. Treasury Inflation-Preserved Securities (TIPS) linked to the Consumer Price Index. She recommends buying 5-and 10-year TIPS instead of 30-year, because the latter is too risky for those who do not intend to hold until maturity.

5. Should I add cryptocurrency to my portfolio?

Cryptocurrencies look increasingly mainstream as a president who launched Memecoin takes office and Treasury Secretary Scott Bessent discloses (and sells) his cryptocurrency funds. Investors can now buy cryptocurrency ETFs, with billions of dollars already pouring into the iShares Bitcoin Trust (IBIT), which was founded for just one year, helping to drive Bitcoin prices to rise nearly 60% in the six weeks after election day.

However, the long-term outlook for cryptocurrencies remains extremely unclear; Bitcoin, for example, has recently declined. Therefore, some advisers say investors who insist on adding cryptocurrencies should keep their positions below 5% of their portfolio; this should be lower if they are close to retirement age. Matt Maley, chief market strategist at Miller Tabak + Co., said that the proportion of young people investing in cryptocurrencies can be slightly higher, but only by balancing risks by investing in "companies with good cash flow, stable and reliable." "You don't want to invest 10% in Bitcoin and 90% in tech stocks."

6. Has the artificial intelligence bubble burst?

The two-year AI stock bull market suffered a heavy blow in January this year as a chatbot developed by startup DeepSeek forced investors to rethink some basic assumptions. DeepSeek said it couldn't get state-of-the-art semiconductors, so it quickly developed a model using less expensive chips that, by some metrics, seemed to compete with the model of U.S. AI leaders. On January 27, Nvidia, which dominated advanced AI chips, plummeted 17%, and its market value evaporated by US$589 billion, the largest single-day drop in the history of the US stock market.

The possibility that artificial intelligence does not require expensive chips has raised questions about the valuation of Nvidia and the US AI giants. Analysts are lying DeepSeek's model carefully to try to verify its statements and to determine whether the US AI boom has reached its peak. It is certain that China is making faster progress in this technology than many people think. Some investment managers have seen a glimmer of hope in DeepSeek because AI could have a bigger impact if more companies and consumers can afford the technology. However, the high valuation of leading tech stocks has made some portfolio managers cautious about investing new funds, favoring undervalued areas in the U.S. market, such as healthcare and consumer goods, or looking for better opportunities abroad.

7. How much impact will climate change have on my retirement plan?

Short answer: Very large. For the vast majority of retirees, home equity is the most valuable asset they hold, especially if they have lived for decades and paid off their loan. Owning your own house completely can guarantee housing costs and avoid uncertainty about future rent increases. But with the increase in the number of extreme weather events and the rising cost of home insurance, this logic seems to be no longer stable.

According to a study of more than 47 million households, the average premium for home insurance rose by 13% between 2020 and 2023. But many major insurers no longer offer new home insurance policies for high-risk areas, or offer only limited coverage—especially in sunny coastal communities, where Americans usually spend their old age. For example, in 2021, about 13% of California’s voluntary home and fire insurance policies were not renewed.

Obviously, more and more elderly people feel no choice but to give up insurance due to cash shortages. According to the Insurance Information Institute, the proportion of Americans without home insurance has more than doubled since 2019 to 12%. "It's putting retirees in trouble," said Daryl Fairweather, chief economist at real estate brokerage firm Redfin. "They either bear high monthly premiums that may rise rapidly or risk losing their homes."

8. Will housing become more affordable in the short term?

The current 30-year fixed mortgage rate is about 7%, which has caused many home buyers to be squeezed out of the loan market. And existing homeowners have little interest in selling if they hold an old loan with an interest rate of 3% or 4%, because that means getting a new mortgage at today’s interest rate. Moody's Analytics chief economist Mark Zandi said mortgage rates are unlikely to fall back to near 6% anytime soon as the Trump administration is pursuing a range of policies that could lead to inflation.

The vacancy rate of lower-priced homes (under $400,000) is about 1%, close to an all-time low. This indicates that prices will continue to remain high in both residential sales and rental markets. Don't expect new homes to meet demand, because immigrants (those at risk of eviction under the Trump administration) account for nearly one-third of the total number of construction workers, about half of whom have no legal status. "Housing will remain unaffordable this year and for the foreseeable future," Zandi said.