10 Best Investments for 2025
The year has gotten off to a dizzying barrage of news with potential to affect markets. However, the announcement that China-based DeepSeek had released its artificial intelligence model, reportedly built for less than $6 million, sent U.S. stocks tumbling.
In particular, wide-ranging AI-related stocks such as Nvidia Corp. (ticker: NVDA), Broadcom Inc. (AVGO), Constellation Energy Corp. (CEG) and Eaton Corp. PLC (ETN) bore the brunt of a sell-off on Jan. 27.
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In a report issued that same day, addressing the DeepSeek-driven market upheaval, J.P. Morgan’s global investment strategy team noted that concentration of the U.S. large-cap market into mega-cap techs continues to be a risk for investors. However, the sell-off didn’t affect all stocks equally. For example, Microsoft Corp. (MSFT), although a backer of OpenAI, which operates ChatGPT, gapped down along with other AI stocks, it inched higher as the session wore on. Microsoft’s biggest source of revenue is its Intelligent Cloud business unit, something the market seemed to realize.
Similarly, Amazon.com Inc. (AMZN), which in addition to online retail operates Amazon Web Services, a cloud computing platform, initially sold off but finished the session in positive territory.
The sands may be shifting when it comes to AI, although it’s far too early to say what companies will emerge as leaders.
“We expect the AI trend to continue to drive economic and market outcomes. However, continued competition and innovation will create winners and losers underneath the surface of equity indices,” J.P. Morgan analysts wrote.
“We encourage investors to look for opportunity while maintaining an overall portfolio that is resilient to the potential shocks that could occur,” they added, recommending a continued focus on diversification to help protect against sector-specific volatility.
Here’s a look at 10 asset classes and their performance one month into 2025:
— Cryptocurrencies.
— U.S. growth stocks.
— International stocks.
— Dividend-paying stocks.
— Small-cap stocks.
— Real estate investment trusts.
— Commodities.
— Treasury inflation-protected securities.
— Short- and medium-duration bonds.
— Thematic ETFs.
Cryptocurrencies
and other crypto prices skidded along with tech’s after the DeepSeek news, but prices are still hovering near recent highs.
“Crypto markets are consolidating around the $100K level for Bitcoin, but if history tells us anything, volatility isn’t going away anytime soon,” says Gavin Filmore, chief revenue officer at Tidal Financial Group in New York.
While prices have settled after the post-ETF launch rally, investors can expect price swings as the market digests broader economic factors and regulatory developments, Filmore adds.
“Despite the ups and downs, the long-term outlook remains strong, with increasing mainstream adoption helping to cement crypto’s place in the financial world,” he says.
The launch of more traditional ways of accessing crypto, namely spot exchange-traded funds, or ETFs, is having an impact.
“Last year’s run-up leading to the spot Bitcoin ETF approvals was a clear example of how investor demand through regulated channels can move prices,” Filmore says. “And with billions now flowing into these funds, they’re playing a bigger role than ever in supporting the market.”
U.S. Growth Stocks
The Vanguard Growth ETF (VUG) outperformed the Vanguard S&P 500 ETF (VOO) in the past year, an indication of this asset class’s strength.
“I am bullish on cyclical growth equities at least through the first half of the year. This is based on an expectation of increasing fundamental and earnings strength throughout the year in these asset classes,” says Daniel Milan, investment advisor representative and managing partner at Cornerstone Financial Services in Southfield, Michigan.
For example, he says the financials sector is showing strong year-over-year earnings growth so far in the current earnings season. He expects continued strength across other growth sectors as well.
International Stocks
U.S. stocks have dominated markets in recent years. The iShares Core MSCI Total International Stock ETF (IXUS) lagged the iShares Core S&P 500 ETF (IVV) by a substantial gap in the past five years.
Investors routinely get advice to diversify their portfolios into international stocks, but this asset class has been a drag on performance. Does that mean investors should abandon international?
“About half of the world’s publicly traded companies are based in the United States. It seems like hubris to me to believe that the U.S. is the only place to invest,” says Tim Clairmont, president and CEO at Clear Financial Partners in Lake Oswego, Oregon.
Because markets move in cycles and it’s impossible to predict when emerging or developed markets outside the U.S. will shine, Clairmont says he advises diversification to decrease risk.
Dividend-Paying Stocks
Even with the outsized performance of growth stocks, income remains a crucial component of asset allocation, especially in retirement accounts.
“I continue to believe in the power of dividend-paying stocks, but specifically in dividend-growth-paying stocks,” Milan says. “This is a belief that is consistent with my philosophy supported by historical data. Dividend growers have consistently outperformed non-dividend payers by a wide margin,” he says.
Companies growing dividends, he says, tend to have the strongest fundamentals, such as profitability, net free cash flow and balance sheets, Milan adds.
Small-Cap Stocks
The SPDR Portfolio S&P 600 Small Cap ETF (SPSM) has trailed the large-cap S&P 500 over the past five years.
An investment theory known as the small-cap premium suggests that smaller companies outperform larger ones due to higher risk and growth potential. While that’s true in some market cycles, performance in recent decades has challenged this view.
However, says Clairmont, small-cap stocks still offer the potential for overperformance.
“It’s inherently built into the system. If you have to take greater risk of a company failing, for example, due to its size being smaller, then you should mathematically have a higher expectation imposed on your rate of return,” he says.
However, he adds, just because these stocks should earn more over time doesn’t mean that they will, nor are they necessarily appropriate for any given investor’s risk tolerance and overall portfolio.
Real Estate Investment Trusts (REITs)
Real estate investment trusts allow investors to access income streams associated with property ownership without the hassle of being a landlord. They are required to distribute at least 90% of taxable income to shareholders.
That’s appealing to income investors, but not all REITs hold the same types of underlying assets. That means yield can vary dramatically from one REIT to another.
For example, the AGNC Investment Corp. (AGNC), a mortgage REIT focusing on agency securities, offers a 15.5% yield. This REIT is more sensitive than others to interest rates.
In contrast, Digital Realty Trust Inc. (DLR) is a data-center REIT with a 2.8% yield. It’s focused on growth from cloud computing and AI trends, meaning investors have viewed it as having a more stable business model.
The income structure of REITs contrasts with the contractual obligations that exist with other forms of income investing, like bonds.
“Because they are bond-like, the market price of the REITs typically will be negatively impacted by rising interest rates,” says David Rath, partner and chief investment officer at Continuum Wealth Advisors in Saratoga Springs, New York.
Commodities
Commodities can serve a diversification role in portfolios, but some investors are hesitant to add this asset class.
“Many investors stay away from commodities thinking they are complicated or too risky (think the film ‘Trading Places’) or they need a special account, but with ETFs it is possible to get exposure with a standard brokerage account,” says Vince Stanzione, founder of financial publishing company First Information.
An easy way to access commodities, he says, is with the Invesco DB Commodity Index Tracking Fund (DBC). This ETF is pegged to an index of futures contracts on 14 of the most heavily traded physical commodities. Those include oil, natural gas, gold, silver and copper. Energy is the largest component, followed by agriculture.
For investors who want more exposure to agriculture, Stanzione cites the Invesco DB Agriculture Fund (DBA), with components including cocoa, wheat and sugar.
Other ETFs allow investors to focus on a specific commodity such as oil, gold or silver.
In addition to their role as diversification, commodities can serve as an inflation hedge. “I still believe gold, even after the 26% move up in 2024, offers a good way to protect from inflation and currency weakness,” Stanzione says.
Treasury Inflation-Protected Securities (TIPS)
Treasury inflation-protected securities are government bonds that adjust their principal value based on inflation. This helps buyers preserve their purchasing power.
“For those income investors who want some level of protection against inflation, TIPS represent a popular way to hedge that risk. However, they have their drawbacks that investors need to be aware of,” says Rath.
When inflation rises, TIPS increase their principal value. This increase is taxed as income that year, even though the bondholder won’t receive the money until the bond matures or it’s sold. This creates a potential tax burden without actual cash in hand.
In addition, says Rath, there’s an opportunity cost for owning TIPS versus other forms of bonds if inflation is tame or if it is lower than what the market expected at the time of purchase.
“That being said, they can provide valuable protection against high inflation in an investment guaranteed by the U.S. government,” he adds.
The iShares TIPS Bond ETF (TIP) is up 1.9% in the past year. Don’t look for price appreciation here; the aim of this ETF is inflation protection, which may come in handy if inflation remains elevated in 2025.
Short- and Medium-Duration Bonds
For investors who want reliable income and a way to mitigate the volatility of stocks, short-term bonds may be a viable option. These bonds are also less volatile than longer-term bonds.
“The duration of a bond or a bond fund is a shorthand way for an investor to see how sensitive that investment is to a change in interest rates,” Rath says.
“The higher the duration, the more sensitive that bond or fund is to changes in interest rates, good or bad. As interest rates rise, bond prices go down, and vice versa,” he adds.
The Vanguard Intermediate-Term Treasury ETF (VGIT) invests in U.S. government bonds with maturities between three and 10 years.
It aims to provide current income with high credit quality; in other words, this is another security that can provide ballast along with regular coupon payments.
Thematic ETFs
Today’s investors will find an array of ETFs targeting specific trends, industries or investment ideas. Popular themes include cybersecurity, clean energy and artificial intelligence.
“I work with more traditional asset allocation models. But I’m generally comfortable with clients taking risk in more aggressive positions with up to 10% of their net worth,” Clairmont says.
It’s possible to speculate with individual stocks, cryptocurrencies or precious metals. “But, I do like that these types of thematic ETFs can allow an investor to lean into an area that they might be more interested in,” Clairmont says.
“They should be careful, however. Anything invested in speculative positions like these should be an amount of money the investor feels like they can afford to lose,” he adds.
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10 Best Investments for 2025 originally appeared on usnews.com
Update 01/30/25: This story was published at an earlier date and has been updated with new information.