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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn how to balance risk and reward in your investments, rebalance your portfolio, and avoid common investing pitfalls.
How can you manage risk and reward when investing? What are the best strategies for rebalancing your portfolio for 2025? Host Sean Pyles and Investing Nerd Sam Taube discuss how to set yourself up for long-term financial success by evaluating your investment strategy and taking actionable steps to achieve your goals. They begin with a discussion of investment basics, including tips and tricks on building a balanced portfolio, understanding stock market trends, and preparing for potential risks and rewards.
Then, Sean and Sam discuss strategies for rebalancing your portfolio to align with your financial goals and risk tolerance. They cover how to identify when it’s time to rebalance, the benefits of diversifying investments, and common investment pitfalls to avoid. The episode also dives into avoiding scams and red flags in the investing world, so you can make the smartest decisions to set yourself up for long-term growth.
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Well, here we are. It’s a new year. Time to take stock of how things are going with our investments. Are you thinking maybe it’s time to take a bit more risk or are you looking at your portfolio and wondering if it’s time to pull back? We’ve got some ways for you to consider all the options for investing in your financial future.
I do believe that people should generally build a safe and boring portfolio of index funds first and then they can speculate with whatever money they’ve got left over, and I’m practicing what I preach there.
Welcome to NerdWallet’s Smart Money podcast. I’m Sean Pyles.
It’s 2025. Do you know how your stocks are doing? Are you doing that classic new year exercise of checking the batteries in your fire detector and rebalancing your portfolio? Will you be investing some time in your investing strategy? It’s a great time of year to do that, and Sam, today we’ve got a whole slew of tips for getting started.
Yes, we do, and let’s say upfront what we always say at the end of the show, which is that we are not investment advisors, and this nerdy investment info is for general educational purposes only. It may not apply to your specific circumstances. That said, a lot of us touch the investing world in some way, whether it’s through retirement accounts, college savings plans, or maybe a health savings account.
The latest Federal Reserve survey of consumer finances showed that some 58% of US households had some sort of stock ownership as part of their finances. That was the highest number on record. The survey measured the year 2019 to 2022, so it included the COVID era and the meme stock era, for whatever that’s worth.
For some people, that era was worth a lot. For others, not so much. That Fed survey is also borne out by another survey, this time the Economy and Personal Finance survey from Gallup. That one found that around 62% of American adults invest in stocks. That’s everything from what we already mentioned—savings for retirement or college—to people holding individual stock portfolios. If you’re interested in investing, well, you have a lot of company.
Sam, how about you tell us exactly what’s going to happen in the stock market this year so we can all make a lot of money?
I would be a very rich man if I could do that, but unfortunately, I can’t.
What we can do here is prepare for both the best and the worst, and make it so that the daily stock market gyrations don’t factor that much into our overall well-being. Our goal today is to make that possible for you.
Fair enough. We want to hear what you think too, listeners. What are you working on in your financial life as we start the new year? Leave us a voicemail or text the Nerd hotline at (901) 720-6373. That’s 901-730-N-E-R-D, or email a voice memo to [email protected].
Sam, last week we talked with fellow Nerd and chief economist, Elizabeth Renter, about financial regrets. Let me ask you to gaze back on last year and talk about what the investing year was like, and maybe some regrets or at least lessons we might be able to take away from it.
It was a rip-roaring year for a lot of different kinds of investments. The S&P 500 was up over 25% year-to-date by early December, which is when we’re recording this. That’s an exceptionally good return compared to the long-term average of 10% per year. It was also a really big year for crypto. Bitcoin more than doubled in price last year, and certain tech stocks did even better than that. Nvidia shareholders, for example, almost tripled their money last year. If you spend enough time on social media, you find stories of people who have gotten very rich very quickly from big bets on these things over the last year. If you weren’t one of those people, it’s easy to get retroactive FOMO about it.
In truth, if you diversify your investments enough, you’re not really missing out. As a personal example, I did not own individual shares of Nvidia at any point last year, but I did indirectly profit from Nvidia’s gains because I own S&P 500 index funds, which contain Nvidia. My returns for the year were probably lower than someone who went all in on that single stock. On the other hand, that person was probably a lot more stressed about their investment than I was.
Let’s talk about some of the standout sectors that did especially well or especially poorly. I know you were all over the Nvidia story and came on the show a couple of times to talk about it. What were some other winners?
Tech in general had a pretty good year. The NASDAQ composite is actually doing even better than the S&P 500 at the time of recording in late 2024. There’s still a lot of hype for certain kinds of AI and semiconductor-related companies like Taiwan Semiconductor, and as we previously mentioned, Nvidia. They’ve kind of carried the tech sector this year. Another sector that outperformed the market in 2024 was communications. There’s a blurred line between communications and tech. For example, Meta, which was formerly known as Facebook, had a really great year, as have certain kinds of big media conglomerates like Disney and Netflix. Another big outperformer last year was the financial services sector. A lot of the big banks like Goldman Sachs and Bank of America also outperformed the market by quite a bit, and then, as we mentioned, crypto had a really great year.
That’s right. My Dogecoin shot up quite a bit after the election. As of this recording, it’s at a whopping 38 cents, and it was often much, much lower, maybe closer to 1 cent at different points in the year. I’m really proud of the performance of my joke cryptocurrency.
So, Sam, how about some loser industries in 2024?
The energy sector was kind of a laggard last year. It had a positive return, but less than the S&P 500. The performance of oil and gas stocks, generally speaking, is very dependent on the market price of oil, and that has actually decreased slightly over the course of 2024. You might think that poor performance in the fossil fuel industry would mean that clean energy has done well, but that has not been the case. Clean energy, particularly solar, has actually had a really rough year. The Invesco Solar ETF, which is sometimes used as a benchmark for the solar industry, was down almost 30% last year, despite the strong performance of so many other stocks.
What, if anything, do these poor performers tell us about what might be coming for the markets in 2025?
A lot of these trends, both the winners and some of the losers, are likely related to the election. There’s a theory that the stock market was anticipating that President-elect Donald Trump would win. Many of these trends may reflect expected changes in government policy or regulations that have been priced into the market over the last year. For example, the Biden administration has made some moves toward trying to break up some of the big monopolistic tech companies. Shareholders in that industry may be betting that those antitrust actions are just going to go away under Trump. Another thing that’s really important for the tech industry is there’s a perception that we may be getting a looser regulatory approach to AI under Trump than we might’ve gotten under Vice President Kamala Harris. Bank shareholders may also be anticipating looser regulations.
In his first term, Trump loosened some of the banking regulations that were put in place after the 2008 financial crisis, and there’s a chance he may do more of that in his second term. It’s a similar deal with crypto. Markets may be just betting on less regulation in that space.
Going back to the clean energy industry, do you think the dip there is also election-related?
There is a good case for it. The solar industry, in particular, has really benefited from tax credits under Biden, and shareholders may be predicting that those tax credits won’t last. But there’s an important caveat here, which is that there are a lot of assumptions in this thinking. We don’t necessarily know what’s going to come out of this new administration, and if these policy changes I’ve talked about don’t happen — say the new government doesn’t loosen banking regulations or it keeps the solar tax credit going — then these trends that we’ve been talking about might reverse somewhat.
The main stock indices — S&P 500, Dow — hit new records last year over and over again. What does that mean historically? The saying is that what goes up must come down, but what do we know about how markets and investors behave in an environment of rising stock prices?
What goes up must come down” is very true in physics, but in some ways, the inverse is true when we’re talking about the stock market. When it comes to stock indexes like the S&P 500, it’s kind of “what goes down must come up.” Bear markets do happen, and they can feel really gnarly while they’re happening, but they’re generally followed by much longer bull markets that tend to surpass previous highs by quite a bit. Since 1932, the average S&P 500 bear market has lasted less than two years. The average bull market, on the other hand, has lasted more than four years, and we just had a bear market in 2022. History suggests that we’ve got a lot more upside ahead, even after a very strong 2024.
At a high level, Sam, should we even pay attention when we hear news items about stocks hitting records?
For long-term investors, I can’t really think of an immediate action anyone needs to take when we hit a new high, but it’s something to keep in mind. A lot of people set up their portfolio to contain a particular mix of stocks and bonds, say 80% stocks, 20% bonds, and when we have a really strong year in the stock market, it can sometimes mess up those proportions. If stocks go up more than bonds, you might log into your retirement account or whatever after a while away and find that you now have a 90:10 stock and bond portfolio. This is why financial advisors recommend rebalancing your portfolio once or twice a year, which you mentioned at the beginning of this episode. That means selling off some of the investments that have done really well and then using the proceeds to purchase some more of the investments that have lagged so that you maintain your target mix over time.
Okay. We’re going to take a short break. We are back in a moment with more investing information for 2025. Stay with us.
Sam, it’s time to get personal. How are you approaching investing in 2025? Doing anything different, new, exciting, boring? What are you keeping your eye on?
I’m mostly very boring. Almost all my investments are in index funds, and I’m planning to hold them for years. For the most part, I’m just going to keep holding and adding money to them in 2025. I do also have a tiny amount of Bitcoin and Ethereum. It’s spare money, and I don’t have a particularly strong investment thesis for it, but one Bitcoin was worth a few hundred dollars in the early 2010s, and recently, it passed a hundred thousand dollars. I want to see what it does in the years ahead.
In our line of work, people can sometimes sound a little bit scoldy when we talk about high-risk speculative investments like crypto. I don’t know if it’s realistic to tell people that they should never, ever touch stuff like that. I know how risky crypto is, but I’m a human being, and I’m curious about it. But I do believe that people should generally build a safe and boring portfolio of index funds first, and then they can speculate with whatever money they’ve got left over, and I’m practicing what I preach there.
I think that’s good advice. You cover your fundamentals first, make sure that you are saving and investing for retirement, and then if you have some leftover cash, maybe dabble a bit in other areas. But I think if people are putting all of their money into crypto for retirement, that’s a very risky, potentially dangerous idea.
Let’s talk about how to get into investing if it’s something that you’re not already immersed in but maybe want to experiment with, especially outside of retirement and other savings funds. With the caveat once again that we are not investment advisors, what’s a good way to dip a toe into the stock market waters—or maybe the bond waters if that’s your thing?
The first step is going to be to open an investment account if you don’t have one. NerdWallet has some really helpful roundups of the best brokerage accounts if you don’t know where to look. Once you have an account, you need to put some money in, and then you also need to invest that money. I’ve mentioned index funds a couple of times already. For listeners who don’t know, these are baskets of stocks that mirror the performance of a stock market index like the S&P 500. They’re really good for beginners. The nice thing about S&P 500 index funds and most other index funds is that they give you exposure to dozens or hundreds of stocks in a single purchase. They’re pretty low maintenance. You don’t really have to research the individual stocks or worry about whether or not they’re doing better or worse than the overall market because index funds just give you the overall market’s return.
And what are some red flags to keep an eye out for if you are new to the investing world?
There’s a lot of bad faith and scammy information out there, and I think a big red flag is any kind of promised return. If you come across some crypto product or investment guru or something who promises that they can double your money in a year, that’s probably a scam. A milder red flag is if someone or something is bragging about its past returns. If you go on TikTok, you can find these stock-picking gurus who advertise themselves by bragging about the big 500% score they made on Nvidia options last year or whatever the case may be. The thing is, even if that claim is legitimate, past performance doesn’t guarantee future performance. It’s still good to be skeptical of any kind of influencer or financial product that advertises itself that way. There’s a common thread here, which is to be aware of things that sound like get-rich-quick schemes. If it seems too good to be true, there’s a good chance that it is.
Sam, what are some ways to figure out which investing platform is best for you? There are so many apps and websites out there. What advice do you have for picking one over another? What factors should people be considering?
The best investing platform for a particular person is going to depend on their goals and also on their skill level. Again, I’m going to plug NerdWallet’s roundups here because we have a whole bunch of them that cater to different kinds of needs. If you’re looking for a retirement account, we have a roundup of the best IRAs. If you’re really new to investing, we have a roundup of the best brokerage accounts for beginners. If you’re more experienced and you’re looking to trade options, we have a roundup of the best brokerage accounts for options, too. On each of these roundups, we have a really easy-to-read table that lists each broker’s fees, account minimums, active promotions, and our NerdWallet rating, and also detailed pros and cons lists for each one. We want to make it easy for you to do all your comparison shopping in one place. Of course, we’ll include a link to those in today’s show notes.
Sam, I wonder if you could talk a bit about the relative importance of stock markets in our financial lives. There’s a common saying that the stock market is not the economy, right? Yes, it’s a large part of the financial world, but would you agree that it’s not the end-all, be-all? When we hear news headlines about the stock market, we need to understand that there are other aspects of the economy that are just as important.
Absolutely. For that matter, if you’re really just starting out from square one financially, investing probably isn’t even going to be your top priority, and ditto if you’re trying to recover from some kind of setback or get out of debt. Many advisors would say that building up an emergency fund and paying down high-interest debts like credit card debt are good things to tackle before you even start thinking about long-term savings and investments.
Very sound advice. Sam Taube, thank you so much for helping us out today.
And be sure to join us next week as we continue to look at your money in 2025. We’re going to hear all about budgeting and how to manage your credit life.
The main caution to watch out for with credit cards is overspending. Credit cards can just be really tricky because it doesn’t necessarily feel like real money, and other than the credit limit on the card, there’s really nothing stopping us to keep swiping away to buy what we want.
For now, that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373. That’s (901) 730-NERD. You also email us at [email protected]. Remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.
This episode was produced by Tess Vigeland. I helped with editing, Ariel O’Shea helped with fact-checking, Megan Maurer mixed our audio, and a big thank you to NerdWallet’s editors for all their help.
And here once again is our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
And with that said, until next time, turn to the Nerds.
