TARIFFS, INFLATION, POLICY UNCERTAINTY
Unless you have been living under a rock, you probably have been hearing plenty regarding the volatility in equity markets. And if you checked your retirement account anytime in the first few months of 2025, you probably were not pleased with the results. Coming off the heels of two remarkably strong years in the stock market that saw the S&P 500 up 25% in 2024 and 26.2% in 2023, 2025 has been all over the map.

The index has oscillated from positive territory to down over 10%, and the daily swings have been quite unsettling at times. What is to be done if your organization is currently invested in the stock market or looking to invest?

UNDERSTAND THAT INTRA-YEAR VOLATILITY IS NOT UNCOMMON
Intra-year volatility is not only common, it is the norm in equity markets. Consider the last five years in the S&P 500, which has seen mid-year drawdowns of -34%, -5%, -25%, -10%, and -8% since 2020. In those 5 years the S&P 500 index rewarded investors with an average annualized return of over 20% despite three market corrections of 10% or more.

Before investing in equity markets, it is important to know that you may be in for a wild ride at times.

UNDERSTAND THE UNCERTAINTY
There are a multitude of factors contributing to the ups and downs we have seen in markets to start the year. I’m not sure anyone can claim to have the answer to where the US ends up in tariff negotiations, or where inflation and interest rates are headed.

Currently, there is an immense amount of domestic and world policy up in the air, and the markets are seizing on every bit of hope or despair. This is likely to continue until we get clear answers on some of these outstanding issues. Even then, there may be entirely new issues that present themselves once those issues are resolved.

EVALUATE INVESTMENT TIME-HORIZONS
Given this level of uncertainty, is it appropriate for your organization to be invested in such a risky asset class? One of the most important factors in making this decision is determining how long you plan for your assets to stay invested.

If your organization plans to make a downpayment on a loan in six months, the equity markets are likely not for you. But if you have time to ride through the economic turbulence over a long time-horizon, it may make sense to seek the risk premiums offered in the stock market.

DIVERSIFY, DIVERSIFY, DIVERSIFY
Diversification is paramount to reducing overall risk in an investment portfolio. Adding in a mix of fixed income and alternatives that have lower correlation to stock market performance can help reduce the magnitude of the volatility in a portfolio.

For the equity portion of an investment allocation, geographical diversification is important to risk mitigation as well. International stocks continue to trade at lower valuations than domestic markets and adding them to an equity portfolio can reduce overall risk by spreading investment across different economies.

FINAL POINTS
Volatility and risk in equity markets is unavoidable. In fact, the reason stocks offer the upside they do is because of the return premium investors receive for bearing this risk.

If it makes sense, given the institution’s goals and investment time horizon, a well-diversified equity portfolio can be a key part of an organization’s investment allocation and help them achieve their ambitions. The Investment Funds at BFCAL are designed to help you achieve these goals with numerous offerings across multiple asset classes, all invested in a manner that you can be proud of as a Christian.

Please feel free to reach out to Bradley Frailey at or 909-738-4000 to find out how we can serve you and your team on your journey.