Allan Roth: Predictions, Resolutions, and Good Advice

A banner year for U.S. stocks is winding down, with the Vanguard Total Stock Market ETF (VTI), which aims to provide investors with exposure to "approximately 100% of the U.S. equity investable universe," up a healthy 28% so far this year. 

That comes on top of last year's 26% gain (both are total returns including reinvestments of dividends). 

After those back-to-back performances, investors wonder: What’s going to happen in 2025? 

I’m sure there will be many articles with expert opinions predicting metrics like the ending value of the S&P 500 and the like. Here are a few of my predictions that might actually be useful. I’ll conclude with some investing resolutions for you to consider.

Prediction 1: Top-performing ETFs will attract billions of dollars and disappoint

I love reading the lists of the top 10 performing ETFs. How wonderful to imagine the wealth we would have amassed if only we had invested in them. It’s a virtual certainty that next year’s top 10 will attract a huge amount of investors’ assets. There is also a very high likelihood that they will disappoint going forward.

A diversified ETF can never make this list. Only a fund that has concentrated positions can do so. If those positions soar, they can make a top-performing ETF list. But if they falter, they, as you may have guessed, could make a worst performing ETF list. 

Nothing goes up forever and reversion to the mean is a powerful force. Take the ARK Innovation ETF (ARKK). It had stellar performance though 2020. Predictably, money poured in just in time to see it lose nearly 75% of its value over the next two years. 

Prediction 2: Most investors will take too much risk

Over the past five years, the stock market has gained an average of nearly 15% annually. That means it more than doubled in value. Investors tend to put way too much weight in what has happened in the past few years than what happened many years ago. This is known as recency bias. 

Then, of course, stocks plunge and investors realize their appetite for risk wasn’t as high as they thought. Whatever causes the next plunge will be something that has never happened before and this will be the reason cited by investors as to why they are dumping their equity ETFs. And the next bear market may not be the teddy bears (short with quick recoveries) we have seen since the year 2000. There will be another grizzly bear we need to prepare for.

Prediction 3: The best predictor of performance will continue to be fees

Yes, the top 10 performing ETFs of 2025 will again likely have high fees. But those will be the outliers where the stellar performance of the concentrated positions far exceeds the fees. The arithmetic is compelling in that, as a whole, investor returns equal market returns less fees. Nobel Laurate William Sharpe wrote a brilliantly simple three-page piece on the arithmetic of active management.

Prediction 4: The majority of the expert predictions of next year’s performance will be very wrong

Of course, these forecasts will have compelling logic that will make us all want to follow the advice. Many may even brag about their past forecast, carefully selecting the ones they go right and ignoring what they got wrong. Applying common sense is always a good thing. If these gurus knew the future performance of markets, the next hot sectors, or the best companies to buy now, wouldn’t they all be at least billionaires? 

2025 New Year’s Investment Resolutions

So, keeping in mind my predictions for the coming year, I’d like to suggest some resolutions that are far more likely to get you to financial independence. 

1. I will avoid buying a top-performing ETF as chasing performance doesn’t work. 
2. I will take only as much risk as I need to take and will buy during the next plunge to get back to my asset allocation target.
3. I will invest in ETFs that keep fees low and diversification high and have the discipline to stick to the plan. 
4. I can read or listen to specific 2025 predictions but will not alter my portfolio no matter how compelling their logic sounds. 

All four resolutions take much less effort than other resolutions such as eating better or exercising more. Ignore the experts and control your instincts. Instincts and experts typically lead us all to foolish investing.

Though, admittedly, these are boring resolutions, they are also likely to help your portfolio grow faster, getting you to financial independence that much sooner to pursue all the excitement you desire.

Here’s wishing you a dull 2025 in investing and an exciting year in most everything else.