Riding The Wave: 2026 Forecast #190

Recently, I had the opportunity to sit down with fellow Certified Financial Planner, Jeremy Bush, for our forecast market outlook on 2026. It was a great conversation. We covered a lot of territory, not only a look back at 2025, but also what we think is going to happen and what the experts are saying about 2026. Thanks for listening!

Sources: 

• https://www.goldmansachs.com/insights/articles/the-sp-500-expected-to-rally-12-this-year
• https://www.thestreet.com/investing/stocks/every-major-wall-street-analysts-sp-500-forecast-for-2026 

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Contact Josh Nelson: https://www.keystonefinancial.com
Contact Jeremy Busch: https//www.keystonefinancial.com
Podcast Editor: Tim Leaman/info.primegen@gmail.com

Transcript

Wiser Financial Advisor – Riding the Wave, Keystone Forecast 2026

Hi Everyone. Welcome to the Wiser Financial Advisor podcast. I'm your host, Josh Nelson. Recently, I had the opportunity to sit down with fellow Certified Financial Planner, Jeremy Bush, for our forecast market outlook on 2026. It was a great conversation. We covered a lot of territory, not only a look back at 2025, but also what we think is going to happen and what the experts are saying about 2026. If you would like to view any of the slides, feel free to go to our website at www.keystonefinancial.com and click on the YouTube link in the upper right-hand corner. Please let us know any questions you may have in the meantime. Otherwise, have a wonderful week and God bless.

Jeremy: Welcome one and all to the 2026 Keystone Forecast Event.

Josh: Glad you're here. We know a lot of people end up watching this as a replay because then you can speed us up if we're getting a little long-winded. No shortage of things to talk about when it comes to the market and the economy.

And if you think of any questions afterwards, we certainly would love to answer them by email. You can just email either one of us. We've got our emaili nfo at the end. Of course, you can just call us as well. 

All right, let's get started. We are going to call our forecast 2026 Riding the Wave this year, because I mean, it certainly is like that. Sometimes waves can be smooth and sometimes not, and that's what we've seen this last year. Doesn't mean the end of the story is bad, necessarily, but a lot of volatility this past year. I don't know if that will change this year. Probably a lot more of the same. 

There are a lot of good things to report as far as economic news and returns and so forth, about where we think things are going. Our halftime presentation comes halfway through the year. It's about what we're seeing based on the experts. Of course, the experts oftentimes are wrong. They don't know exactly what's going to happen, but they're all paid to give an opinion. And so we're going to give ours.

Jeremy: By all means. Josh Nelson, Jeremy Bush, we'll be doing our best to give you all of this information.

Josh: We’re CFPs, Certified Financial Planners. That's the gold standard in the financial planning industry. That CFP doesn’t guarantee anything, but it does say that we're a fiduciary, number one, which is a legal standard meaning that we have to look out for your best interests. That's a very different standard than maybe somebody who's a broker or a salesperson. They're not obligated to do that. Not to say that they're bad people, but there is a difference between working with a fiduciary or not. We’re both Certified Financial Planners. We have four advisors now on our team, but Jeremy and I are the senior advisors. Doesn't mean we're old, but it does mean that we've been here and have more experience. 

Jeremy: Around the block a couple times, I'd say.

Josh: Exactly. Our disclosures are that everything we talk about is our opinion. Nothing is guaranteed. As always, past performance is not indicative of future results.

Jeremy: A lot of the time when we're doing planning, we talk about it as a linear progression, but in reality, financial planning is not a single plan. Things come up and we have to alter the plan or pivot here or there. That is what we're here for.

Josh: You have to adapt. As planners, we're working in an environment of uncertainty. Your plan versus reality, that's life. The market, the economy, our personal lives, our professional lives. There are going to be a lot of great things that happen. Also unexpected stuff sometimes. We do need to react to that. And of course, be proactive, be thoughtful, think in advance. Also, it's really about the decisions that are made during difficult times, as we'll talk about here in a bit. Sometimes that decision is to do nothing, so that we don’t act rashly. Just like being on an airplane when things get really turbulent, it’s not a good idea to take off your seatbelt and jump out the door. This last year would be a good example of one during which there were lots of twists and turns, but the story ended up being fine.

The great financial crisis, back in 2008, 2009 was the largest drop we had ever seen in the market in my career. Those of you who have seen the movie, The Big Short or read the book, know what happened at the time and why the market reacted so violently. But when you look on a large scale, although the pandemic certainly affected the economy in a big way, but on a large scale, it wasn't that big of a drop, and things ended up bouncing back.

Jeremy: We'll get into more details on this, of course, but 2026 looks to be a pretty decent year. We'll get into the whys of it, deficit, finance stimulus, lower rates. AI is definitely a big part of this. But of course, there's still a lot of uncertainty around inflation and various other things happening in the world and in the US. That's not going away anytime soon.

Josh: There could be clouds that look a bit dark, and things that we suspect could happen and sometimes they do. Sometimes weather forecasts do end up being accurate and you end up seeing a tornado. Most of the time that doesn't actually happen. 

So, this year we're expecting 12 to 15% gain, based on what we see and based off of the experts. We're expecting a 12 to 15% increase in stocks as a broad category. There are lots of different types of stocks, right? So, this assumes a very broadly diversified stock market, not indicative of one sector. Last year, I think we ended up about 15, 16% in the overall stock market, which was certainly above average. We think we're still going to be above average this year, though not quite as much. 

The bond market will probably be a bit more muted. Looking at yields this year, bond type investments will likely be in the 3 to 5% range. We're not expecting a huge appreciation in bond prices like we saw last year. Many of our clients’ bond fund holdings in their portfolio increased in the 6 to 8% range last year Fixed income typically doesn't do that. You don't typically see appreciation in your fixed income, but during some years like 2022, we saw a big drop in fixed income prices because there's a seesaw effect. When interest rates go up, mixed bond prices go down. We're going to unpack both stocks and bonds in the forecast.

Jeremy: It comes down to economy and policy. What is happening in the world and what are we looking at? So, we'll start out with the labor market. On the positive side, job growth has slowed but has not stalled. Unemployment has edged higher, yet we're still pretty historically low. So a number of charts are telling the same story.

Josh: Back when I started as an advisor in ‘99, the experts said that if we were under 5% unemployment rate, that was considered full employment. There are always some job transitions and things like that. But more or less what that figure means is that anybody who wanted a job, had a job. It might not be the job they wanted or the pay they wanted, but they had the opportunity to get a job based off the available job market. We've been consistently under that number since the pandemic. Other than that, the unemployment rate has stayed low for quite some time. That's not to make light of anybody's situation, because we have clients that certainly experience layoffs or maybe they've got kids and the kids can't get a job, those sorts of things. But as far as historical trends, that's what we're seeing.

Jeremy: And one factor on that is prime age employment. Prime age employment is people who are retiring, people in that 65 to 67 age category. People waiting for Medicare to kick in, and for Social Security. That's an indicator of income stability. Most people who are retiring are in that income stability range.

Josh: Yeah, exactly. And in a lot of cases, people do retire in their mid 50s to mid 60s. Sometimes we see outside of that, but that primary working population is 25 to 54. Once you hit that retirement age, a lot of spending ends up happening as well, which certainly is a driver of the economy.

Jeremy: Our friends over at Carson put together a chart of the trends in the economy and an index of what's expected, telling us that there are some definite upsides in the current economy and market.

Josh: Yeah, absolutely. There are lot of different factors that go into that index. During the great financial crisis of 2008, 2009, or the pandemic, there were sharp decreases, but what's interesting is that there were huge bounce backs. During the pandemic, we saw unemployment rates go to 11, 12%, which was historically very high. Then a big bounce back when jobs came back so quickly that in a lot of cases, the biggest challenge for businesses in 2021, 2022, was that they couldn't get positions filled. People had left jobs and then found something better. 

Jeremy: There aren’t a lot of indicators signaling deterioration or a recession coming down the pike. 

Josh: And some of the things, like a recession, like the pandemic, how do you predict those? It's always going to be something. For some recessions that we've had in the past, there were clear signs that the economy was slowing, things were deteriorating. That's not what we're seeing right now.

Jeremy: Another point of brightness on the horizon is internationals. Over the last couple of years, internationals have not been a big bright spot within portfolios, but we always want to make sure that there is some international in there because it does serve a purpose in diversification.

Josh: Yeah, absolutely. Developed internationals broadly include Canada, Western Europe, Japan, Australia, South Korea. Emerging internationals would tend to be Southeast Asia, Africa, Latin America. Eastern Europe. It’s important to have both, but there are different risk factors and different diversification benefits.

Jeremy: Yeah, and this is probably no big surprise to anybody, but looking at tech, mainly around AI related stuff, we look at five of the biggest companies involved in this.  As it happens, we have clients from four of these five, which is kind of fun. What we're looking at here is off the charts level spending. It's at its highest level, a lot of infrastructure involved with AI, a lot of major players developing it and bringing it in.

Josh: Yeah, these companies are spending from their profits: Microsoft, Alphabet, Google, Amazon, Meta, Oracle. We could add in others like Apple or Broadcom. These companies are all extremely profitable right now. So that's one important point to make. In the late 90s when there was a dot-com bubble that hit, a lot of those companies were not profitable and many were never profitable. There are probably some examples of smaller AI-related startups that are not profitable now. The big companies are investing a lot of money, but it's coming from earnings. It's not fictitious money or all being borrowed. They are making a lot of money. 

Jeremy: Like you said, these companies are established. This investment is coming from margin profits. It's not just anybody with a computer making a dot-com and throwing it out there, getting people to throw money into it with nothing behind it.

Josh: Right. When I started as an advisor in 1999, the dot.com boom was still happening. And it was very ugly when the bubble burst. As a result, there's some rational fear out there now. But it’s a different situation. 

Jeremy: We have a good question here. With gold cresting to $5,000 an ounce, are you considering increasing exposure to gold in your clients' portfolios?

Josh: In some portfolios, if you've watched activity, we have over the last year increased gold in the form of ETFs, meaning an exchange traded fund. Those are liquid instead of having to go get a wheelbarrow full of gold, right? There are ways to get exposure to lots of different areas of the market, including alternative investments. Not a bad part of a diversified portfolio; we just want to do it in a measured way. Should you have some exposure to AI stocks? Yeah, you probably should, right? And if you're invested with us, you probably do have that exposure in your portfolio. But don't put it all there. Where people got in trouble in the late 90s was instead of having a diversified portion, they put it all in tech stocks like Cisco. And Cisco stock over the last few months finally regained its high point that it hit back in early 2000. So that's a poster child for a company that didn't go bust but was so overvalued that it took 20 plus years to regain its value. 

A diversified portfolio is going to have exposure to lots of different types of asset classes, which some people might find a bit boring versus making big bets on things. But you have a lot better odds of doing well over time by having a portfolio that has lots of different ingredients.

Jeremy: And seeing gold as a good diversifier, I'd say it's probably about two years ago that we started aggressively adding gold in there. And as far as additional allocation, as we try to stick with the buy low, sell high thing, we're not planning to overexpose in any one area, but it is definitely an included diversifier inside of portfolios.

Josh: Yeah, that's always tempting. The bubble that got formed from real estate was a smaller bubble. But is there a bubble being formed right now? There are probably certain companies that are overvalued, right? So we want to be careful about risk and making sure that we're not taking too much risk in any one area. That's particularly important if you work for one of these companies, which again, many of our clients do. Even if it's a great company, it's so easy to get overexposed if you're getting restricted stock or stock options or something like that as part of your compensation.

Jeremy: Now moving into talking about fiscal policy. We've been talking about this one for years. The U.S. debt is at its highest levels ever.

Josh: Yeah, 38 trillion and counting, for the debt. 

Jeremy: I think the Clinton administration was the last one to actually have a balanced budget. But debt always plays into it, right? We always have to have that conversation about debt. How is it being managed and what, if anything, is being done about it?

Josh: Yeah, borrowing money, just like if you did personally, if you went out and borrowed a bunch of money right now for something like rental houses. If the economy took a slight downturn and unemployment rates went up, all of a sudden now your renters have bailed on you, or you're having to make big concessions like three months of free rent, things like that. You could be getting crushed. If you had a lot of debt against those properties, you could find yourself upside down very quickly. So the concern long term is that, if our debt levels get unsustainable and we continue to run deficits, how long can that go? Short term, it can be good because, from a rate of return standpoint, it allows the economy to grow faster. But again, just like if you're an individual, you can only do that for so long or so much, compared to what your economy is growing now.

Jeremy: And of course, if you were watching at this time last year, the big word was tariffs, right? Things spiked up quite a bit and then everything backed off. 

Josh: If we exclude the kind of presidential tariffs that were put in there, we’re closer to historical averages. From ‘24 to‘25, there was a five-fold increase in the effective tariff rate. This is being wrestled with right now in the courts, as far as how much power does the president really have to impose tariffs or tariff-like restrictions on different countries. It's going to be very interesting this year to see how that plays out. Taking those out, that presidential authority without Congress, gets us to much lower numbers. 

A lot of people thought that we were going to see a massive increase in inflation that would have a devastating impact on the economy, but that hasn't materialized. I think it mainly is because whenever something happens, even if it's something bad, people adjust. Companies and individuals figure it out pretty quickly. We've seen that globally, with countries and individual companies. 

Those of you who are in supply chain, a lot of your jobs got impacted, because you had to adapt very quickly to trade. All the companies we mentioned before are global. There are very few companies of any size anymore in the US that are strictly in one country.

Jeremy: We've been doing this together long enough, and over the years we've seen that time and again—that corporate America is just a really good at navigating these things. They want to know which direction to go, and they can make that work. Things get really volatile only when a lot of stuff gets thrown at them all of a sudden and they don't know which way to put it.

Josh: If you're the CEO of Walmart or Coca-Cola or Broadcom, any of these companies, you get paid a lot of money, right? They've got a board of directors, it’s not just all one person, but get paid a lot of money to make those decisions. Then, here's the plan, and then here's life and what actually happens. They are paid a lot of money to navigate an environment of uncertainty. And as Certified Financial Planners, that's our job too—navigating your financial life through the midst of all that.

Jeremy: And then of course, there’s Fed policy. So current policy rate is about 3.88%. I don't really think this changes a whole lot. Obviously, the Fed is keeping an eye on things. They're still expecting a couple cuts, I believe, this year. But if we're trying to keep on this, what we see later this decade is probably some rate increases in a measured way.

Josh: Yeah, exactly. Measured, I think, is the key. We're probably going to see a couple more rate cuts. And who knows, right? I mean, it's going to depend on who the next Federal Reserve Chairman is. If there's political pressure, we might see rates drop. Or if the economy were to deteriorate in a big way, like back in the pandemic, that was one of the first things that happened. The Federal Reserve lowered rates to zero. A lot of you have 2.25%, 2.5% mortgages. So probably not a lot of policy support for rate increases, some decreases, but historically we're not at a bad place right now. Especially when you've got an economy growing in the 3% to 5% range, depending on whose numbers you're looking at. It's probably about where we should be, maybe a little bit lower. And then some concerns about inflation, especially if that starts ticking up again above historical averages, the Fed will feel pressure to start raising rates.

Jeremy: Let's talk about equities or stocks.

Josh: Equities is just a fancy word for stocks.

Jeremy: Right? Just a fancy word for stocks. So obviously recessions have negative impacts on things, but over all the biggest thing is that for about 68% of the years, historically the S&P had an annual return over 10%. 

Josh: A lot of things happened from 1950 to the present. There were a lot of recessions, hyperinflation back in the 70s that got averaged into those years. The main thing is, the chart of the historical market is kind of like flying. If you get on an airplane, you're going to experience turbulence. That’s fairly routine. So it's pretty unlikely that we're going to see a period of massive drawdown during a non-recessionary time. We're expecting that we won’t have a recession this year.

Jeremy: The key to that is earnings expectations. We've said this before, that what ultimately drives the market is people like you and me just spending money. That isn’t really slowing down. How that translates is what are the earnings per share of something like the S&P 500 and where they're expected to go. We're at a pretty good spot right now, but it does look like there is more room to grow.

Josh: For sure. Earnings have been very good. Sometimes people wonder if there’s a bubble forming in the overall market or whether the market can continue to go up. Well, last year it was mostly driven by earnings. Earnings growth by and large was very good, not just in the AI stocks. I think it's a mistake to say it all came from that one sector. It's pretty broad-based actually, if you look at the S&P 500 and all the sectors' earnings. By and large they were good and expected to continue to go up in the future. 

A company’s worth is found in its earnings. If a company doesn't have earnings, that's suspicious, right? It could be a startup situation, but that's why those are risky, and most startups don't make it. Most companies that are starting out don't make it because they can't get over that hump of profitability. For more mature companies, it all comes down to earnings. That's why quarterly earnings reports are such a big deal, because a company is just worth its earnings, not the buildings and the inventory or things like that. Most of a company’s worth is based off of its profit.

Jeremy: And to that point, corporate margins show how profitable they are, and those earnings are pretty darn high. Scale, pricing power, productivity gains, all that stuff adds into it and makes them more efficient, gives them bigger margins. Now, we do have a good question here, someone asking if we have any read on what trends are driving insurance rates so high? I know we've been hearing that.

Josh: Yeah, we did a podcast on this a while back. Largely it's because of big events. Natural disasters, things like that. Claims history. Certain areas like Florida and North California that have had extreme weather events, and that may be a trend. We're not going to get into the why as far as was it global warming or whatever. It doesn't really matter for our purposes. We're just seeing insurance premiums go way up. It isn’t because insurance companies just want to make a whole lot more money. Their margins haven't expanded a whole lot. They are reacting to actual claims, right? And the odds, perhaps. Maybe things will settle down, but the odds are that some of these extreme weather events and large claims end up continuing to go up. Think of the wildfires a year ago in LA. It's not the first time that happened. You've got a dry area and Santa Ana winds and so forth. Whether they will continue to sell policies at all is a problem too. 

Jeremy: Sometimes, you can't even get insurance. If they sell policies, they know they have to pay it out. And when you're working with national insurance firms, even though you're living in Colorado, if something happened in LA or Florida, it is still going to affect you.

Josh: Yeah, they have to make up for that. They lost a bunch of money on claims elsewhere. Not to defend the insurance companies, but they have to report to all the insurance commissioners. Insurance is largely a state-regulated industry. When they're selling policies in a given state, they have to report to the insurance commissioner in that state, so there is some level of accountability. But we haven't seen a massive expansion in earnings of insurance companies, largely because of actual claims and fear. Good question. All right, so back to profitability, profit margins are higher across the S&P 500, which should be some comfort. Earnings are strong, which gives a lot more justification for why the market is where it is right now.

Jeremy: In 2025, we ended the third year of a bull market. One thing that always comes up is to ask how long can this bull run? If we look over the history, an average bull market is about 67 months. A pretty long time.

Josh: Yeah, about 5 1/2 years or so. That's why we make money historically, right? We can't guarantee anything for the future, but that's why you make money in stocks. It’s due to expansions. Bull markets tend to last a lot longer than bear markets, but you have to suffer through those bear markets as they go.

This bull market started October of 2022.It was preceded by a bear market. 2022 was a bad year overall. If you were invested in stocks, bonds, pretty much anything, that year went down. Cryptocurrency went through the floor. Many different sectors got crushed, so even a diversified investor was probably down 20% or somewhere close to it. 

A lot of people forget about years like that one. We show charts of that, and it's like, oh, that's right, there was a bear market. That bear market was largely because of aggressive interest rate increases because we had hyperinflation at the time. Crazy swings coming out of the pandemic. That's what happened with the last one. There will be a future bear market, just to be clear, but it's a lot less than the average length of a bull market.

Jeremy: Three years in and we're still pretty young in this bull market, although age alone isn’t the only consideration. 

Josh: October historically is a bad month. A lot of bear markets end up hitting then, like during the financial crisis, that was the worst month. Sometimes people want to try to time the market off of that and say, shouldn't we always be out in October? No, not necessarily. That would have been a bad idea this year. But it is kind of interesting, because there does seem to be at least some correlation to that.

Jeremy: So, with year three behind us and going into year four of this bull market, what can you expect? Well, if we look at history here, your average is 13 to 14%, which does line up with what we were thinking at the beginning of this year.

Josh: Yeah, exactly. We think it will be more of an average year, and maybe expectations should be slightly lower than what we've seen in the last three years, but still likely to be a growth year.

Jeremy: There's always volatility, right? There are always pullbacks in the market. They're very normal. They don't feel very good when they happen, but how often do these pullbacks go and to what extent?

Josh: The last significant one that we saw, and it's easy to forget these things, was last April. We saw a pullback in the market related to tariffs. It wasn't quite a bear market, but it sure didn't feel good. It was abrupt. And just like if you're on a flight, it doesn't matter how often you fly, nobody likes turbulence. It's not something that you're going to enjoy, but it is part of the experience, and it's important. That's why we spend so much time talking about risk when we design portfolios for clients. That's a central feature, to first talk about what kind of risk tolerance you have. That's our jargon for how tolerant are you of the market equivalent of air pockets, like when you're on an airplane and things are jerking around. It's better to talk about that before you get on the plane. 

Some people just don't get on the plane. That's all right. You know, some people decide that from a portfolio standpoint, they want to keep all their money in cash and CDs, which are virtually guaranteed. But the price that you're going to pay for that, of course, is that it's going to take you a lot longer to get there. It’s kind of like going from LA to New York City. You can get there in a few hours or you can get there in a few days. It’s a choice. And there's a huge trade-off for many people. They're okay paying the price of turbulence to get there in a few hours as opposed to if you have plenty of time. John Madden back in the day had his bus, right? He would not fly. He just knew that about himself. But for most of us, when it comes to finances, we don't have that luxury. Unless you start with an awful lot of money, most people are going to have a big inflation problem throughout their retirement if they don't have some parts of their portfolio that can outpace inflation.

Jeremy: Yeah, so the pain is inevitable, but it also doesn't mean you need to panic. For instance, if we're looking at the Dow, a 3% dip in the Dow happens about 7 times a year. Let's put that into perspective. A 3% dip in the Dow right now would be about 1,500 points. Okay, seems like a lot. A 5% drop is called a mild correction. That's about 2,500 points. That happens about 3 times a year. And in the past a correction of 10% down in the market happens on average once a year. To put that into perspective, a 10% dip is around a 5,000 point swing.

Josh: Let that sink in for a second.

Jeremy: So, if I saw a 1500 point drop in the Dow, that might raise some concerns. 

Josh: We might kill this metaphor, right, but back to being on an airplane, if you're a seasoned traveler, you’ve probably experienced lots of turbulence and sometimes even extreme turbulence. There's a right and a wrong way to react to that when it happens. It’s so easy to forget about the turbulence of the past, even if you've been on thousands of flights. How many flights can you point back to and say, “I remember the turbulence of LA to Hawaii back in 2004.” Probably not. There might be a couple that are memorable enough to remember.

Most of these dips that we experience, we kind of forget about how the market went down. The ones that register are more the extremes, like during the pandemic, the financial crisis, the dotcom crash. And even after those extreme drops, there's never been a bear market that wasn't followed by a bull market. The flip is also true, right? There's never been a bull market that wasn't followed by a bear market. It’s called a cycle for a reason. There’s a trend that says that companies figure out different ways of doing things. They invent stuff and we buy it. That's the economy, but volatility really is the price of those higher returns. Just like if you're going to Hawaii, the turbulence is the price you pay besides the dollar amount to get to Hawaii.

Jeremy: Throwing this one in there, we're in year two of a presidential cycle. Historically, second term presidential cycles, year two tends to be a pretty good year on average.

Josh: We don't know for sure, but it does work in cycles as well. That isn’t a political commentary. You'll notice that we always play Switzerland here when it comes to politics. There are strong feelings on both sides, and we stay out of that. We're more about what's the reality as an investor. In other words, what does a smart investor do to design their portfolio? What decisions do they make along the way? But that is indeed a trend, that this would not tend to be a bad year if you look at historical averages. 

Why are we thinking the market's going to go up? I think there's good reason to believe it's going to be positive this year. Doesn't mean there won't be air pockets, though. We can't hit home on that enough, the fact that we don't necessarily know how we're going to get there. There will be a lot of stuff that happens in between.

Jeremy: When we're talking about the market and everything, especially when your major indices are pretty high historically, something that always comes up in conversation is valuations, asking “Is this overvalued? Is that undervalued?” How are we picking what we're investing in, et cetera. We'll hammer this again in a minute, but valuations are a terrible short-term timing tool.

Josh: They sure are.

Jeremy: It's way more about earnings and earnings growth. There always seem to be some sectors that are overvalued and some that are not. So, if anything, this is the case for diversification. Trying to use valuations as a timing tool is absolutely terrible. When you look at one year returns of where various companies were valued and where they were a year later, it’s all over the place. There's no rhyme or reason to any data on that graph.

Josh: Yeah, you listen to the talking heads who get on CNBC or Fox Business or Bloomberg, they're paid to have an opinion, but they don't know. They can't say that, though. I mean, they'd be out of a job really quick. But we know that we don't know. So even some big companies may not be profitable. I remember about 20 years ago having a conversation with a client about Amazon stock. (This is not a stock recommendation.) He was saying, “Amazon hasn’t been profitable for five years.” This was near the beginning of Amazon, and they were pumping all that money into building the company. Eventually, they got profitable, right? They're kicking out actual earnings and dividends and so forth. But a dotcom that’s brand new may have no earnings at certain time periods while they choose to make investments.

Jeremy: If anything is true about 2025 carrying into 2026, it’s uncertainty reaching super high levels. It's uncomfortable. 

Josh: Yeah, planning in the midst of uncertainty is kind of like a football game. The head coach is paid to make decisions, but did they have to adapt the plan a bunch of times? Of course, because they didn't know exactly how it was going to play out. So getting uncomfortable or knowing that that's part of the ride is important.

Jeremy: And on that same trend of valuations, are there places that are overvalued right now? Well, yeah, the easy one is the tech sector, largely because of how many infrastructure payments there are from building out AI. There's a lot of money flowing around there. But that also means opportunities in other areas.

Josh: A big benefit of being diversified.

Jeremy: Across the very broad market, when we look at, say, the weighted S&P, with more weight on the bigger companies in there, that's one indication. But if we did an equal weighted S&P 500, it gives us a pretty good indication of where the value is out there and how it’s stacking up.

Josh: About a third of the standard S&P 500 is concentrated in a handful of companies right now. So, sometimes there's advice out there to just buy the S&P 500. But that might not actually have you as diversified as you think because of that concentration.

Jeremy: We always look at bonds, of course, with yields, the Fed policy, and what they're doing. As shorter-term rates drop faster than longer term rates, intermediates tend to take a while to catch up.

Josh: The Fed doesn't control long-term rates. So yeah, it's the short-term rates where you'll see an immediate reaction.

Jeremy: Everybody likes to jump on the yield curve thing and pretend that they're really smart and they know what it means.

Josh: Predicting a recession. It’s like saying, “Well, the stock market's always down in October.” No, it's not actually.

Jeremy: What we're trying to get at here is yes, that yield curve on bonds has kind of flattened out. It’s no longer what we would call inverted, but not typical of bonds either. If we go back to 2022, that was just a rough year in the market across the board. Interest rates were rising really fast. Bonds did not diversify you out as much. Pretty much anything and everything that could go down was going down.

Josh: Yeah, a standard 60-40 allocation didn't go your way that year, in other words.

Jeremy:  Really, it's that matter of our bonds getting into a more normalized area, which I think they are heading in that direction. They still can be a good diversifier, but also there are other things that can be good diversifiers out there.

Josh: For sure. Somebody mentioned gold before. Should you have some gold in your portfolio? Maybe. We say maybe because we need to talk to you as an investor. What are you expecting out of your portfolio? But can gold be part of a diversified portfolio? Absolutely.

Jeremy: And there's always someone saying, what if this year repeats or that year repeats? As we mentioned, 2022 started out with bonds not looking good before the year even started and when 2022 hit, there was a bit of a free fall in just about everything. Typically, what we see in the statistics is that if yields are higher coming into a year like that, there's not as much of a drop. So, the likelihood of a 2022 pattern hitting in the bond market again is highly unlikely.

Josh: A lot of it comes back to inflation too, and what the Fed's thinking. Inflation is close to historical averages right now. We haven't talked about that as much today, but back in 2022, the issue was very high inflation and the Fed having to react to that. Right now, inflation is at more of a normal level, about 3% a year historically over the last 100 years. I know somebody might reference eggs or whatever the item is, like insurance, which was mentioned here. Have some things gotten way more expensive? Absolutely. Inflation is somewhat individual based off your own situation, right? And where you're spending your money.

Jeremy: And then, where is the most value inside of that? There are lots of different bonds and things that you can buy into, but relatively right now, what we're seeing are your mortgage-backed securities, the general aggregate index, municipal bonds, et cetera.

Josh: Bonds being not the most exciting part of a portfolio, but oftentimes that's not why we put bonds in. It's usually to make things less exciting, less volatile.

Jeremy: And then we always love these Callan charts which show what each asset class was doing. From year to year, it’s all over the place. That's why we spend so much time with clients on that diversification and risk tolerance conversation. How much volatility are you comfortable with? And then how do we stay diversified within that range?

Josh: A surefire way to make your portfolio more volatile is to put everything in one area. That way, you'll have really good years and then horrible years. You'll see this seesaw effect versus if you build out a diversified portfolio that covers a lot of different sectors. The Callan chart doesn't even show alternative investments such as cryptocurrency, private equity, private real estate, other types of investments. I’m not saying that any of those are necessarily right for you, but there are lots of different asset classes, so this is some art and some science. It's about trying to build a portfolio that has some zigging and zagging effect to it so that we're not completely in one area.

Jeremy: Overall, the bottom line is that we’re expecting policy support, AI investment, and we're going to keep an eye on everything as we move through it. All the signs point toward economic expansion continuing on, looking at international exposure, tech leadership, and valuations. Staying diversified, using what is available out there and keeping on the trend.

Josh: Doing what we do. Yep, absolutely. And we want you to make as much money as possible, if we're managing your portfolio for any given risk level. A lot of people are surprised that international holdings were some of their best performers last year. Some people think, well, it was just because of AI. Not necessarily, right? It could be some of those other areas, or if you had gold or other types of asset classes, those might have given you a much higher return than typical AI type holdings. So do we think that you should have those areas covered? Absolutely, a diversified portfolio should do that. But that's not the only area right now. Lots of opportunities.

Jeremy: And always keep in mind that those pullbacks and setbacks happen all the time. It's just expected that it’s not going to be a smooth ride, and it's never a straight line.

Josh: Our team is here for you, especially during tough times. And sometimes those tough times have nothing to do with the economy or the market. It could be something going on in your life. You might have lost a loved one or you might be having problems with your kids or something like that. You might say, well, that's for a counselor. Often, though, money is related to it, because your money and your life are closely related as far as the resources and choices that you've got. That's why we really enjoy the financial planning process because we get to know our clients so well. Relationships are the best part about our job. And we appreciate you. Those of you who are clients, thank you. Those of you who are about to become clients, thank you as well. The care and attention that we put into what we do and our clients is pretty high. That is our greatest strength. The people element to this is huge. I can say that we really enjoy the people we work with as well. It's a high trust relationship, right? There's substance there, but ultimately it ends up being a pretty tight relationship. So that's fun.

Jeremy: Here is our contact information. You can write to Josh at josh@keystonefinancial.com or Jeremy at jeremy@keystonefinancial.com . We love questions. Happy to take them. If maybe you're not a client and you just want to learn more about us or have some specific questions, we're always happy to talk with you and at least get you pointed in the right direction if we can.

Josh: Our website is a great resource as well. www.KeystoneFinancial.com .Our main office location is in Loveland, Colorado. We work with clients all over the country but 80% of our clients live within driving distance of our office. The other 20% live every place else, so I don't know how many states we are serving at this point.

Thank you for your time today. Thank you for listening. We appreciate you and hope you have a wonderful day.

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The opinions voiced in the Wiser Financial Advisor show with host Josh Nelson offer general information only and are not intended to provide specific advice or recommendations for any individual. To determine what may be appropriate for you, consult with your attorney, accountant, financial or tax advisor prior to investing. Investment advisory services offered through Keystone Financial Services, an SEC registered investment advisor.