Learning from early 2025: Diversifying your investment strategy still key

One of our key themes heading into 2025 was building resilient portfolios. We often write about how having a diversified mix of equities and fixed income could help keep portfolios on track to meet longer-term goals during periods of volatility. The first quarter of 2025 has borne out this key investment principle.

While recent volatility has been uncomfortable, diversification has been working. During the quarter, gold was the top performing asset (that we track) as heightened market volatility and uncertainty remained, and investors flocked to the safe-haven asset. European equities also experienced strong positive performance over the quarter, boosted by higher expectations of European growth following a significant 500-billion-euro infrastructure package in Germany.

Building a championship team requires more than just playing offense (equities); it also needs a strong defense. For investors, bonds have served as those defensive assets this quarter. U.S. treasuries, in particular, delivered positive returns amid ongoing U.S. growth concerns. The classic 60/40 portfolio (60% equities and 40% fixed income) remained roughly flat throughout the quarter, highlighting the potential stabilizing role of a fixed income allocation as a buffer against equity market volatility.

The S&P 500 was the notable negative performer during the quarter, as tariff uncertainty and concerns about the future dominance of large U.S. tech companies weighed on investor sentiment. Looking ahead, we still see positive, high-single digit upside in U.S. equities from current levels based on our view that the U.S. economy will avoid a significant growth slowdown.

For investors, the first quarter was a good reminder to double-check that existing portfolios still align with longer-term goals or to rebalance to a more diversified approach as needed. Making portfolios more resilient will remain a key consideration for the remainder of 2025 and beyond.

All market and economic data as of 03/31/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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