The Clark Howard Podcast
Episode Summary: Ask An Advisor With Wes Moss - 10 Things Investors Should Watch Out For in 2025
Release Date: January 14, 2025

Overview

In this insightful episode of The Clark Howard Podcast, host Clark Howard introduces a special segment, "Ask An Advisor," featuring financial expert Wes Moss. Together with Krista Dibiaz, they delve deep into the critical financial considerations investors should be mindful of as they navigate the investment landscape in 2025. The discussion is enriched with practical advice, real-world scenarios, and actionable strategies, making it an invaluable resource for both seasoned investors and those new to the investment world.

Top 10 Investment Considerations for 2025

1. Economic Resiliency

Wes Moss opens the conversation by highlighting the remarkable resiliency displayed by the U.S. economy and stock market in 2024. Despite facing uncertainties like presidential elections and inflation concerns, the economy saw a robust GDP growth of nearly 3%, and the S&P 500 surged by approximately 25%.

“We were faced with so many uncertainties... yet we ended up with almost 3% GDP growth... and the S&P500 up about 25%.”
[01:25]

Moss emphasizes that this resilience is expected to continue into 2025, laying a strong foundation for investor confidence.

2. The Consumer is King

Delving into consumer behavior, Moss underscores the pivotal role consumers play in the U.S. economy, which is fueled by around 160 million employed individuals. Notably, the current savings rate has dipped to 4%, below historical norms, leading to sustained consumer spending. Additionally, wages have begun to outpace inflation, further boosting consumer confidence and expenditure.

“The consumer is spending. Wages are going up faster than inflation now. That’s good.”
[04:45]

This trend indicates sustained economic growth driven by robust consumer activity.

3. Rising Productivity

Moss points out a positive shift in productivity growth, which has accelerated to 2-2.5% annually thanks to advancements like remote work and artificial intelligence. This surge in productivity enhances economic efficiency and growth prospects.

“We’ve seen 2, 2.5% productivity growth... more productivity, better shot for the US Economy to continue to accelerate.”
[06:15]

Higher productivity translates to increased economic output without a corresponding rise in labor costs, benefiting investors.

4. Political Stability as a Market Ally

Analyzing the presidential cycle, Moss notes that the inaugural year post-election historically tends to be the second-best year for stock performance, averaging an 11% growth in the S&P 500. This stability reduces market uncertainty and fosters a favorable investment environment.

“Over the course of economic history, it’s the second-best year for stocks.”
[08:30]

5. Tariffs and Inflation Dynamics

Addressing concerns about new tariffs, Moss explains that while tariffs can increase the cost of imported goods, companies often absorb some of these costs to maintain competitiveness, mitigating the potential rise in consumer prices. He cautions against overreacting to tariff fears, suggesting that not all sectors will be uniformly impacted.

“There’s a lot of bark about tariffs... but probably not a giant blanket of tariffs.”
[09:02]

This nuanced understanding helps investors anticipate market reactions to trade policies.

6. Dormant Volatility

Moving into 2025, Moss warns that the stock market has experienced periods of low volatility, which is atypical given historical averages. Investors should brace for potential market fluctuations, as volatility is an inherent aspect of the stock market.

“Volatility has kind of been sleeping... I would not be surprised if investors should be prepared to have some hiccups in 2025.”
[21:07]

7. Continued Bull Market Potential

Contrary to the skepticism often fueled by strong preceding years, Moss argues that bull markets can sustain momentum beyond expectations. He cites the historical average bull market duration of five years, with the current bull only two years in, suggesting room for continued growth.

“If you say it's already been good, it can't be good this year, that's not necessarily the case.”
[22:15]

8. Importance of Dividends

Moss emphasizes not to overlook dividends, which historically contribute significantly to total investment returns. Despite recent low dividend contributions, he predicts a potential resurgence, especially beneficial for retirees seeking steady income streams.

“It's really all about growth and income... dividends are a big part of historically how stocks have done well.”
[25:30]

9. Bonds Return to Normalcy

Highlighting the favorable bond market, Moss notes that bond yields have rebounded to more sustainable levels, with the 10-year U.S. Treasury yielding between 4.5% and 5%. This resurgence makes bonds a viable option for income-focused and conservative investors.

“The ten-year treasury started this year at around four and a half, it’s up to almost four and three quarters.”
[28:10]

10. Earnings as Market Drivers

Concluding his list, Moss underscores that the true driver of the stock market is corporate earnings. With consensus estimates projecting a 13% increase in earnings compared to the previous year, the foundational strength of companies sets a positive tone for market performance.

“Earnings estimates for this year are up 13% compared to last year. That’s a very nice undercurrent to have companies churning out more in earnings and profits.”
[29:10]

Listener Questions and Expert Advice

After outlining the ten critical factors, Wes Moss transitions into a Q&A segment, addressing real-life financial scenarios submitted by listeners.

1. Transitioning to a 60/40 Portfolio (Chuck from Georgia)

Question:
Chuck, 68 years old, recently retired, considering moving from a 100% stock portfolio to a 60% equity and 40% bond allocation. Unsure about timing and bond selection within TIAA CREF.

Advice:
Moss recommends adjusting the portfolio promptly to align with retirement goals, emphasizing the importance of balancing growth with risk mitigation. He suggests utilizing life cycle funds offered by TIAA CREF, which automatically adjust the asset mix as one approaches retirement.

“If you’re 68... and you’d rather have only 60% in equities... I would go ahead and do it all at once.”
[12:01]

2. Rolling Over a 529 College Savings Account (Jonathan from Texas)

Question:
Jonathan, his son is now working and not attending college. He wants to roll over an unused 529 plan into a retirement account without incurring taxes.

Advice:
Moss informs Jonathan about a recent law allowing tax-free rollover of up to $35,000 from a 529 plan to a Roth IRA, provided the account has been open for at least 15 years and contributions for five years. He advises spreading the rollover over multiple years to maximize tax benefits.

“You can take $7,000 a year and roll it into a Roth... over the course of five years, that’s all 35,000.”
[14:14]

3. Assessing the Safety of Modern Woodman’s Fraternal Financial Company (Diana from Oklahoma)

Question:
Diana is concerned about the safety of her SEP IRA managed by Modern Woodman’s Fraternal Financial Company, a firm established in 1883, offering a fixed annuity with a 4% guaranteed interest rate.

Advice:
Moss reassures Diana by highlighting the company’s long-standing history and high ratings (e.g., A rating from AM Best), indicating financial strength and reliability. He explains that fixed annuities are typically secure investments, especially when issued by reputable insurance companies.

“Modern Woodman’s... is a really highly rated company. It has been around for a very long time. Good financial strength.”
[16:44]

4. Balancing Retirement Funds and Roth IRA Contributions (Joan from Pennsylvania)

Question:
Joan and her 61-year-old husband have significant retirement savings in her husband’s Vanguard account. She is considering reallocating some funds to her Roth IRA for better financial stability in case of long-term care needs.

Advice:
Moss advises against withdrawing from the husband’s IRA to fund her Roth IRA due to potential taxes and penalties. Instead, he recommends maximizing her own retirement contributions through deferment strategies like 403(b) plans and Roth IRA contributions, enabling efficient long-term growth without compromising her husband’s retirement assets.

“I would not be pulling it from the IRA to put into her savings. I would just really try to maximize what she could defer when it comes to her income.”
[33:01]

5. Evaluating Life Insurance Policies (Tom from Georgia)

Question:
Tom, a 75-year-old retiree, holds two term life insurance policies totaling $350,000 with annual premiums of $2,475. He is contemplating canceling these policies to invest the premium savings but seeks advice.

Advice:
Moss strongly advises maintaining the existing term life insurance policies, emphasizing their value in providing substantial financial protection at a relatively low cost. Regarding the proposed burial insurance policies, he cautions against them, highlighting their poor return on investment and the misleading nature of their advertising.

“I would definitely not stop that anytime soon... It’s not the rate of return that’s good.”
[41:07]

He concludes that the existing term policies offer significant benefits that outweigh the potential gains from reallocating funds into investment vehicles.

Conclusion

This episode of The Clark Howard Podcast offers a comprehensive roadmap for investors eyeing 2025. Wes Moss’s expert analysis combined with practical listener Q&A provides a balanced perspective on navigating economic trends, market dynamics, and personal financial strategies. Whether contemplating portfolio adjustments, understanding new financial laws, or evaluating insurance policies, listeners are equipped with the knowledge to make informed decisions towards achieving financial freedom.

For more personalized financial advice, listeners are encouraged to visit www.clark.com/askclark and submit their questions.