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Despite various headlines, geopolitical tensions, and other risks, the stock market posted a second year of strong returns, with the S&P 500 up 25%. As we look forward to 2025, it is important to understand what happened in 2024 that led us to this point.

Definitions matter. We learn this in elementary school, if not before, as we are tested on our ability to connect vocabulary words to brief descriptions. Then, the definitions feel absolute, unambiguous, and concrete. However, as we develop and progress into reality, we realize that definitions are relative, ambiguous, and abstract in many instances of life. This situation is the case and, therefore, the plight of the investment advisor.

While this subject could take many forms and pursue different avenues, we will focus on Equity allocations within portfolios.

First up: equity capitalization.

The comments in this article are inspired by the keynote address of Aaron Klein at the recent Fearless Investing Summit in Nashville, TN. For those in the advising community who know Aaron, he is incredibly passionate about the RIA space. He is the co-founder of Riskalyze, which has recently rebranded to Nitrogen. He presented five great ideas to help financial advisors be forward thinking, and they deserve repeating and sharing with a broader audience.

Over the past decade, the financial landscape has witnessed significant shifts, one of which has gone unnoticed. Correlations. Notably, the correlations between equity and fixed income have increased, and domestic and international equities have become more highly correlated. These trends have profound implications for portfolio diversification and risk management. Important note: correlations change constantly over time.

We have entered a world where stakeholder capitalism is on full display, and it should be no wonder when investors call for investments in a social cause. Whether through the lens of ESG, sustainability, or green-specific investments, there has been an increase in understanding and demand. However, it is important to consider not just the investment but also the investor and their needs. After all, with the rise of social media, a company could find themselves in the middle of a culture war in no time and could be trending online with millions of impressions in mere minutes! If this could have a statistical significance on stock price, it is important to consider the risk companies pose when they speak out!

The decision to buy an annuity or not can be a complex one. Understanding the factors that influence an investor’s decision to buy can help carriers design and market products and guide financial professionals’ approaches when speaking to their clients.