Investing

Investing in 2025: the highs, lows, and what lies ahead 


2024 was a rollercoaster year in the world of finance, but what does 2025 hold? In a recent IFA Talk podcast, Dan Kemp, Chief Research and Investment Officer at Morningstar joined IFA Magazine to share his insights. From navigating market volatility to making better decisions, Dan highlighted key themes and strategies for investors and advisers.  

If you’re looking to navigate 2025 with confidence, this discussion is packed with invaluable advice. We have broken down some of the main points to give you a taste of what was explored. To listen in to the full conversation as soon as it’s released head over to our podcast page: https://ifamagazine.com/podcasts/.  

2025 is about preparing, not predicting 

One of Dan’s main points was that forecasting is less important than preparation. “You can’t predict the future,” Dan stated. “What you can do is prepare for a wide range of possible outcomes.” This approach hinges on making strong decisions and avoiding common behavioural pitfalls—something investors often struggle with. 

The biggest challenge, according to Dan, is overcoming our own biases and mistakes. From chasing trends to panic selling, human psychology can be a portfolio’s worst enemy. To combat this, Dan’s team at Morningstar emphasises behavioural insights, helping investors stay disciplined. 

“As investors, we are our own worst enemies,” Dan explained. “We make predictable mistakes that can have long-lasting consequences on our financial health. Recognising these tendencies is the first step to overcoming them.” 

Dan’s focus on behavioural finance underlines a broader theme for 2025: the importance of mindset. “The best investors are not those who predict markets perfectly but those who make fewer mistakes,” he said. 

Is the US market still the place to be? 

The US stock market saw remarkable growth in 2024, continuing a strong recovery from 2022’s lows. But Dan warns that this success has come at a cost: higher valuations. 

“Valuation is inversely related to future returns,” he explained. “The higher the valuation, the lower the expected return. It’s a simple but often overlooked principle.” 

While the US market isn’t in bubble territory, it is overvalued in places, particularly in large-cap growth stocks driven by AI and tech. Dan added, “The concentration of overvaluation in a few sectors means that many other areas of the market are overlooked and undervalued.” 

For better opportunities, Dan advises investors to look beyond these headline-grabbing sectors. “There’s great value in traditional industries and smaller stocks,” he said. Sectors like energy, healthcare, and communication services remain attractively priced. 

Emerging markets and developed regions like Europe and the UK are also showing promise. “The UK and Europe, in particular, offer attractive valuations compared to the US,” Dan noted. “These regions are often overlooked but have strong fundamentals and diversified economies.” 

Whilst it’s key to be aware that emerging markets come with higher risks, “they can provide excellent growth potential,” Dan said, “but investors need to be mindful of geopolitical risks and currency volatility.”  

Dan also highlighted the risks of passive investment strategies in a concentrated market. “Over the last decade, passive investing has been a boon for reducing costs and delivering returns. But with major indices dominated by a handful of stocks, it’s more important than ever to dig deeper.” 

Bonds could be the quiet hero of 2025 

With interest rates beginning to fall, Dan sees long-term government bonds as a smart play. “Yields are now back to what we’d consider normal pre-GFC levels,” he said. These bonds not only offer decent returns but also provide protection during economic downturns. 

“Government bonds are a great diversification tool,” Dan explained. “They tend to perform well in environments where equities struggle. For investors concerned about a potential recession, bonds are an excellent choice.” 

Corporate bonds, on the other hand, are less appealing. Narrow credit spreads mean investors aren’t being compensated enough for the additional risk. Dan’s advice? “Stick with high-quality government bonds to balance your portfolio and mitigate risks. Avoid chasing yield in this environment.” 

Building portfolios that survive surprises 

When constructing portfolios, Dan’s golden rule is to avoid over-concentrating on a single belief. Whether it’s betting on US tech or anticipating a recession, overcommitting to one scenario can leave portfolios vulnerable. 

“One of the greatest mistakes investors make is building portfolios around a single narrative,” Dan said. “The future is uncertain, and focusing on just one outcome can lead to significant losses if that outcome doesn’t materialize.” 

Instead, stress-test your portfolio against a variety of potential outcomes. “It’s not hard to model different scenarios,” Dan advised. “Even a basic spreadsheet with historical data can help you identify vulnerabilities.” 

Dan also stressed the importance of keeping clients engaged and avoiding unpleasant surprises. “When investors are surprised, they make mistakes,” he said. “Avoiding nasty shocks can help clients stick to their plans and achieve long-term goals.” 

AI: opportunity or overhyped? 

Artificial intelligence continues to dominate investment discussions, but Dan urged caution. While AI-related stocks have driven significant gains, many are now overvalued. 

“AI is undoubtedly transformative,” Dan acknowledged, “but that doesn’t mean every AI stock is a good investment. Valuations in this space are often stretched, and investors need to be selective.” 

The real winners in the AI space, Dan suggested, will be companies that successfully integrate AI into their business models. “The key is not just building AI but using it to create value,” he explained. “Companies that can leverage AI to improve productivity, enhance customer experience, or reduce costs are the ones to watch.” 

What’s the secret to long-term success? 

So, what’s the ultimate takeaway for investors in 2025? According to Dan, it’s all about discipline, preparation, and adaptability. Stick to your goals, prepare for uncertainty, and don’t let short-term noise derail your plans. 

“The key is to stay engaged and make decisions based on your long-term objectives,” he concluded. “Success in investing isn’t about predicting markets but about managing risks and staying the course.” 

Dan also emphasised the role of financial advisors in guiding clients through uncertain times. “Advisors play a crucial role in keeping investors focused on their goals,” he said. “They can provide the perspective and discipline that are often hard to maintain on your own.” 

Keep your eyes on the prize 

2025 might look quieter than 2024 on the surface, but investing is never without challenges. By focusing on preparation, diversification, and disciplined decision-making, investors can navigate the year with confidence. Whether it’s digging into undervalued sectors, exploring global markets, or leveraging the potential of AI, the key is to stay focused on your goals and adapt to changing circumstances. 

As Dan emphasised, “You can’t control the future, but you can control how you prepare for it.” Wise words to take into the year ahead. 

If you want even more detail than Dan could fit into the podcast (although he did an excellent job of cramming a lot in), you can follow this link to access Morningstar’s full outlook for 2025

About Dan Kemp 

Dan Kemp joined Morningstar in 2014 and is currently Morningstar’s Chief Research and Investment Officer. Dan leads the Research and Investment team that comprises Morningstar’s fundamental research, manager selection, and investment management activities. The latter will encompass multi-asset, equity, and quantitative strategies, including our direct indexing capability.  

Prior to joining Morningstar, he led Albemarle Street Partners, an investment consultancy partnership that he co-founded.  Prior to Albemarle, Dan was a partner at Saltus Partners, managing the firm’s flagship Saltus Multi Asset Class Fund. Dan started his career as an independent financial adviser specialising in providing ESG solutions to clients 



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