Cryptocurrency, Inflation, Bonds: Investment Guide for a Year of Risks
TechFlow Selected TechFlow Selected
Cryptocurrency, Inflation, Bonds: Investment Guide for a Year of Risks
2025 is full of uncertainties, but with the right strategy, it can also yield returns.
Navigating Web3 tides with focused insightsBy: Suzanne Woolley, Bloomberg Businessweek
Translated by: Luffy, Foresight News
This year is full of uncertainty. The artificial intelligence narrative that drove the U.S. stock market is now being questioned; there's little clarity on how a second Trump administration will impact the financial well-being of ordinary Americans, or whether we'll see inflation rise again, putting pressure on stocks and bonds. To help navigate this uncertain period, we consulted investment experts on some of the biggest questions investors face this year. While the year carries risks, with the right strategy, it could also bring returns.
1. How likely is a sharp drop in the S&P 500 this year? How should I prepare?
Michael Cembalest, chairman of market and investment strategy at JPMorgan Asset Management, said the S&P 500 has risen more than 20% each year for the past two years—an occurrence seen only 10 times since 1871. Cembalest expects the market to end the year higher, but he also notes that a decline as large as 15% during the year wouldn't be unusual. Over the past 100 years, the S&P 500 has dropped 10% or more in 60 years.
Given the potential volatility, a better question may be: When will you need the money? New highs have followed every downturn, so if you can wait several years before cashing out, you're unlikely to face problems. Also, take a close look at your asset allocation. Simply holding the S&P 500 may not be enough, since the top 10 stocks—mostly tech—now account for about two-fifths of the index’s market value, compared with roughly one-quarter in 2000.
Ben Inker, co-head of asset allocation at GMO LLC, suggests a diversified approach: buying an exchange-traded fund (ETF) that tracks an equal-weighted version of the index, where each company makes up about 0.2% of the value. "Over the long term, this is a good way to avoid overexposure to any current investment craze," he said.
2. Does the traditional 60/40 portfolio still make sense?
For decades, financial planners have recommended a 60% stock and 40% bond portfolio, which delivered solid returns with significantly less risk than stocks alone. However, the logic behind this mix—that bonds rise when stocks fall, and vice versa—broke down completely in 2022. As inflation surged and the Federal Reserve raised rates aggressively, both stocks and bonds suffered. Recently, U.S. stocks and bonds have often moved in tandem.
An increasing number of investment managers suggest allocating part of the 60/40 portfolio to so-called alternative assets—private securities whose performance doesn’t closely track public markets. Adding such assets may introduce new risks but could also boost long-term returns. Sinead Colton Grant, chief investment officer at BNY Wealth, said companies are staying private longer, meaning public market investors miss out on higher returns from early growth stages. "If you don’t have access to private equity or venture capital, you’ll miss opportunities," she said. To replicate the performance of late-1990s 60/40 portfolios, private securities should make up about a quarter of a portfolio.
Not everyone agrees. Jason Kephart, director of multi-asset ratings at Morningstar, said adding private assets to a 60/40 portfolio “adds complexity and fees, and raises questions about valuation.” He noted the strength of the 60/40 strategy lies in its simplicity, making it “easier for investors to understand and stick with over time.”
3. If I'm risk-averse, are U.S. Treasuries worth investing in? Will bond vigilantes return?
Bond vigilantes are large investors who demand higher yields on government debt to protest excessive government spending. While details of the new administration's spending plans remain unclear, concerns are growing that the U.S. budget deficit will worsen in coming years, potentially leading to higher Treasury yields.
The current yield on the 10-year Treasury is around 4.6%, near an 18-year high. Should investors seize this opportunity? Until recently, Leslie Falconio, head of taxable fixed income strategy at UBS Global Wealth Management, favored locking in five-year Treasury yields. But given UBS’s outlook for economic growth to remain above trend yet slow, and inflation to decline, she sees a yield near 4.8% to 5% on the 10-year as an attractive entry point. As for the 30-year Treasury, she said, “Given current volatility and policy uncertainty, extending duration to 30 years at these yield levels does not offer a favorable risk-return trade-off.”
Of course, for those with high-yield savings accounts or one-year certificates of deposit, a 4.6% yield might not seem impressive, as these products offer similar returns. But savings account rates can change at any time, and there’s no guarantee you’ll get the same rate when renewing your CD after a year.
4. How can I protect my assets from rising prices?
President Trump has promised to “beat inflation,” yet at the same time is pushing for higher tariffs and tax cuts—measures that could fuel inflation. According to Morningstar investment strategist Amy Arnott, rising prices may not be a primary concern for investors in their 20s and 30s, as wages should keep pace with inflation over time, and stock values generally grow faster than inflation. “Over the long term, stocks are one of the best hedges against inflation,” Arnott said.
Those planning to retire within the next decade might consider dedicated inflation hedges like commodities. A diversified commodity fund, Arnott said, could include oil, natural gas, copper, gold, silver, wheat, and soybeans. Few such funds have performed well recently, so if choosing one, Arnott recommends comparing risk-adjusted returns rather than focusing on absolute performance.
For retirees or those nearing retirement—who can’t offset inflation through pay raises—Arnott recommends Treasury Inflation-Protected Securities (TIPS), which are linked to the consumer price index. She advises buying 5-year and 10-year TIPS instead of 30-year ones, which carry too much risk for those not planning to hold to maturity.
5. Should I add cryptocurrency to my portfolio?
With a president who launched a Memecoin taking office and Treasury Secretary Scott Bessent disclosing—and selling—his holdings in crypto funds, cryptocurrencies appear increasingly mainstream. Investors can now buy crypto ETFs, and billions of dollars have flowed into the iShares Bitcoin Trust (IBIT), launched just a year ago, helping push Bitcoin’s price up nearly 60% in the six weeks following the election.
Yet the long-term outlook for crypto remains highly uncertain—for example, Bitcoin has recently pulled back. Therefore, some advisors say investors determined to add crypto should limit exposure to less than 5% of their portfolio; those nearing retirement should keep it even lower. Matt Maley, chief market strategist at Miller Tabak + Co., said younger investors can allocate slightly more to crypto, but only if they balance the risk by investing in “companies with strong, reliable cash flows.” “You don’t want 10% in Bitcoin and 90% in tech stocks,” he said.
6. Has the artificial intelligence bubble burst?
The two-year bull run in AI-related stocks hit a wall in January, triggered by a chatbot developed by startup DeepSeek that forced investors to rethink fundamental assumptions. DeepSeek said it couldn’t access the most advanced semiconductors, so it used cheaper chips to rapidly develop a model that, by some measures, appears competitive with models from U.S. AI leaders. On January 27, Nvidia, the dominant player in advanced AI chips, plunged 17%, wiping out $589 billion in market value—the largest single-day loss in U.S. stock market history.
The possibility that AI doesn’t require expensive chips has sparked skepticism about the valuations of Nvidia and other U.S. AI giants. Analysts are scrutinizing DeepSeek’s model to verify its claims and determine whether the U.S. AI boom has peaked. Clearly, China’s progress in this technology is faster than many expected. Some investment managers see a silver lining in DeepSeek—if more companies and consumers can afford the technology, AI could have an even broader impact. Still, the sky-high valuations of leading tech stocks have made some portfolio managers cautious about committing new capital, turning instead to undervalued areas in the U.S. market such as healthcare and consumer goods, or seeking better opportunities abroad.
7. How much will climate change affect my retirement plan?
Short answer: A lot. For the vast majority of retirees, home equity is their most valuable asset, especially if they’ve lived in the house for decades and paid off the mortgage. Owning a home outright provides security against housing costs and shields against the uncertainty of future rent hikes. But as extreme weather events increase, rising home insurance costs are undermining this logic.
According to a study of over 47 million households, average home insurance premiums rose 13% between 2020 and 2023 after adjusting for inflation. Yet many major insurers are no longer offering new home policies in high-risk areas—or only offering limited coverage—particularly in sunny coastal communities where Americans typically retire. For example, in 2021, about 13% of voluntary home and fire insurance policies in California were not renewed.
Clearly, a growing number of seniors, facing cash shortfalls, feel they have no choice but to go uninsured. According to the Insurance Information Institute, the share of Americans without home insurance has more than doubled since 2019, reaching 12%. “This puts retirees in a bind,” said Daryl Fairweather, chief economist at real estate brokerage Redfin. “They either face high—and potentially rapidly rising—monthly premiums, or risk losing their homes.”
8. Will housing become more affordable in the near term?
Current 30-year fixed mortgage rates hover around 7%, pricing many homebuyers out of the lending market. Meanwhile, existing homeowners with older loans at 3% or 4% have little incentive to sell, as doing so would mean taking on a new mortgage at today’s higher rates. Mark Zandi, chief economist at Moody’s Analytics, said mortgage rates are unlikely to fall quickly toward 6%, given that the Trump administration is pursuing a range of policies that could fuel inflation.
Homes priced below $400,000 have a vacancy rate of about 1%, near historic lows. This signals that prices in both the resale and rental markets will remain elevated. Don’t count on new construction to meet demand: immigrants—many of whom face deportation under a Trump administration—make up nearly a third of construction workers, with about half lacking legal status. “Housing will remain unaffordable this year and for the foreseeable future,” Zandi said.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
@Bloomberg
