ChooseFI | Episode 570: State of the Stock Market 2025 Q&A with Brian Feroldi

Release Date: October 27, 2025
Host: Brad (ChooseFI)
Guest: Brian Feroldi
Theme: Financial Independence, Market Update, Investing, Practical FI Community Q&A

Episode Overview

This episode features a comprehensive and timely conversation with Brian Feroldi, a renowned investor and financial educator, focused on the current state of the stock market as of late 2025. The discussion dives deep into recent stock market performance, sustainability of high returns, valuation concerns, the influence of AI (both as an investing theme and as a tool), portfolio allocation—especially for those nearer or at FI—and practical Q&A from the ChooseFI community on everything from dealing with legacy stock positions, the purpose of bonds, the “self-cleansing” nature of index funds, to financial advisor alternatives.

Key Segments & Insights

State of the Stock Market (00:00–21:23)

Performance Recap & Historical Context (01:23)

• Brian: “It's been another great year for stock market investors. As of the time of this recording, the S&P 500 is up just over 15% on a year to date basis...that would mark the third year in a row of double digit gains for the S&P 500.”
• Caution that strong historical returns are often followed by periods of lower-than-average returns; high current returns are partially fueled by expanding valuations rather than just earnings growth (02:15).

Are Current Valuations a Concern? (02:15–04:18)

• S&P 500’s trailing PE ratio near 30 (historic high, only matched recently in 2000 and 2021).
• Forward PE near 23—the highest since the dotcom bubble: “We are definitely on the very high side.” (03:38)

Portfolio Strategy & Personal Approach (04:45–07:44)

• Brian’s personal allocation: 30% cash, 70% equities.
  “I am financially independent so I'm on the capital protection side of the financial journey...30% of my personal investable assets are held in cash, which for me is an all time high.”
• Most would still benefit from simple, continuous buying strategies (dollar-cost averaging into index funds).

How Brian Builds Cash (06:51)

• “I've been trimming the stocks that I feel are dramatically overvalued and I've been using that to just simply build up my cash position.”

Where to Park Cash & Thoughts on Bonds (07:48–09:55)

• Prefers brokerage cash for optionality and flexibility, but acknowledges high-yield money market funds as another attractive option.

Navigating Taxes When Rebalancing (09:55–10:48)

• Doesn’t let taxes drive decisions but offsets gains with losses where possible:
  “An elevated tax bill just means that I made money on the investment.” (10:28)

Mega-Cap Dominance & AI Earnings Fervor (12:38–19:30)

• Discussion of the “Magnificent Ten” and extreme market concentration (“...somewhere around 30 or 35% of the S&P 500 is concentrated in those 10 companies.” 14:06).
• The difficulty of knowing if today’s dominant tech companies are in a valuation bubble or an “earnings bubble” (inflated by temporary, unsustainable spending):
  “That is a much, much harder bubble to detect...” (15:58)
• Market sentiment is high due to AI spending, but that may be fragile.

Fundamentals vs. Uncertainty (21:23)

• “We do not know what the market is going to do a month from now, a year from now, two years from now. We have no clue... that's why buying the market...is the most sensible and the highest likelihood of success.” (Brian, 21:23)

Investing Tactics, Processes, and Technology

The Role of AI in Investment Research (23:39–29:31)

• Brian now uses large language models (LLMs) like NotebookLM to parse annual reports and other filings, making research more efficient and accessible.
• Tip from Brian: Limit AI’s sources to SEC/company filings and earnings calls for quality results (25:08).
• Prompting strategy: Assign AI a role (e.g., “act as Warren Buffett” or “analyze as a value investor”) to tailor analysis (“Simply by giving it the AI a role...that can also dramatically increase the quality of information you get back.” 29:11)

Practical AI Use—Real World Quick Wins

• Upload long documents (annual reports, shareholder letters, even scientific papers) to AI tools and request summaries, syntheses, or podcasts for efficient comprehension.

Community Q&A Highlights

Handling Legacy Stock Positions After Firing an Advisor (31:17–36:53)

• Problem: Large, inherited basket of single stocks with significant built-in capital gains.
• Brian: Decision is about comparing downsides—simplify by selling now and incurring taxes, or hold and manage complexity/future performance risk.
• “Ask yourself, which downside can I accept? The known downside of taking the tax hit today, or the downside of making future decisions on all these companies moving forward?” (33:34)
• Wealthier portfolios justify more careful, staged selling, but for many in the FI stage, simply paying a few thousand dollars in taxes for the peace of mind and portfolio simplicity is worthwhile.

Bonds & Asset Allocation Rules of Thumb (36:53–38:44)

• No magic age to add bonds—assess your volatility tolerance and income needs.
• “If you want to reduce the volatility...absolutely think about adding bonds. But if you don’t want either, I would challenge the assumption that you absolutely need to have bonds in your portfolio.” (38:31)

Finding and Researching Individual Stocks (39:54–41:38)

• Recommended sources:
  • Free screeners (Finviz),
  • 13F filings of respected professional managers (Chuck Akre, Terry Smith),
  • David Gardner’s Rule Breaker Investing podcast and The Motley Fool subscription services.

Small Cap Funds & the “Self-Cleansing” Effect (43:06–45:10)

• Small cap index funds have an “upside cap” due to kicking out winners as they grow, potentially missing “the extreme outliers that drive market returns.”
• Brian: “The small cap funds… are cleansing on the upside so they’re kicking out the best performers…that’s not a recipe for long-term success.” (44:41)
• Preference for total market index funds to capture full lifecycle of great companies.

Expense Ratios—How Are Fees Deducted? (46:17–48:09)

• Fees are deducted internally, daily, as fractional reductions from fund assets; you never see a bill:
  “They’re continuously, every single day pulling a tiny, tiny fraction out of your account.” (47:59)
• On advisor fees: Many investors are unaware of how their advisors actually get paid—be vigilant.

Stocks as Long-Term Inflation Hedge (49:13–51:04)

• Companies can raise prices with inflation, making stocks strong long-term hedges, whereas fixed-return bonds may lag during inflationary periods.
• Over the short-term, inflation shocks may cause volatility, but historically stocks’ real return has been around 6.5% after inflation.

Financial Advisors: AUM vs. Fee-Only (51:04–56:53)

• Advisors add value by providing guidance and behavioral check-ins, but perpetual Assets Under Management (AUM) fees can be costly.
• Fee-only / hourly advice (e.g., Nectarine, OpenPath Financial, Abundo Wealth, Advice Only Network) aligns incentives and significantly reduces long-term costs.
• “It is not OK when they don’t explain how they’re getting paid.” (56:10)

Asset Class-Specific Funds & Drawdown Strategies (57:33–62:35)

• Slice-and-dice strategies (dividends, value, size, REITs) can make sense for retirees but always involve tradeoffs: “There’s no such thing as a free lunch.”
• High-dividend strategies trade future growth for current income and may limit long-term wealth-building.
• Culture warning: Don’t treat any investment strategy (like dividends) as a religion or shortcut to FI; be rational and flexible.

Notable Quotes & Memorable Moments

• On why index funds work:

  "The best thing for investors to do is just, as Nick Maggiulli said in his book title, just keep buying... you never have to worry about or think about valuations." — Brian (04:56)

• On the danger of market timing:

  "You've got to get it right twice and maybe even three times...The likelihood of you doing all three...is approaching zero." — Brad (22:16)

• On AI as a research tool:

  “If you limit AI to sources that you personally trust, the quality of the information that you get back skyrockets.” — Brian (25:44)

• On advisor costs:

  “If one of the best possible ways to extract money from a customer—the customer never sees the bill. You're automatically pulling it out, and they're unaware that it’s happening.” — Brian (46:33)

• On FI mindset:

  “People that are following a FI lifestyle, they are probably the most flexible people of any category ever.” — Brian (62:45)

Timestamps for Key Segments

• State of the Market & Valuations: 01:23–04:18
• Brian’s Personal Strategy: 04:45–07:44
• Cash vs. Bonds: 07:48–09:55
• Handling Taxes: 09:55–10:48
• AI and Stock Research: 23:39–29:31
• QA—Selling Legacy Stocks: 31:17–36:53
• QA—Bonds and Ages: 36:53–38:44
• QA—Finding Stocks: 39:54–41:38
• QA—Small Cap Indexes: 43:06–45:10
• QA—Expense Ratios: 46:17–48:09
• QA—Inflation: 49:13–51:04
• QA—Choosing Financial Advisors: 51:04–56:53
• QA—Dividend Strategies & Drawdown: 57:33–62:35

Resources Mentioned

• Brian Feroldi: Social platforms and investing content (search his name).
• NotebookLM (Google): AI-based document analysis.
• Finviz: Free stock screener.
• Motley Fool: Stock Advisor & Rule Breaker Investing podcast.
• Nectarine, OpenPath Financial, Abundo Wealth, Advice Only Network: Hourly fee-only advisors.

Closing Takeaways

• Don’t let market headlines or valuation anxiety paralyze investment decisions. Stay diversified, automate, and stick to evidence-based habits.
• Use technology as a tool, but know its limitations and biases.
• As you approach or achieve FI, asset protection and behavioral coaching become more important—consider your own risk and knowledge levels when adjusting allocation or considering advisor help.
• Clarity on advisor compensation is essential—prefer transparency and fixed, non-AUM fees.

“Dollar-cost averaging into total stock market index funds is just so rock solid...you don't have to think about or worry about anything that we're talking about.” — Brian (19:32)

For further resources, questions, or to connect with local FI communities, visit choosefi.com.