Through the end of the second quarter of 2025, the Dow Jones Industrial gained 3.6%, the Standard & Poor’s 500 Index added 5.5% and the Nasdaq Composite advanced 5.5%. The year-to-date returns camouflaged the quarter’s volatility, especially in the stock market. Equity markets swung from steep losses to fresh highs during the quarter. In early April, President Trump imposed a baseline 10% tariff and reciprocal tariffs of up to 50% on dozens of trading partners. Subsequently, he suspended most reciprocal tariffs for 90 days amid a very negative stock and fixed income market reaction. The markets retraced their losses. The U.S. and China then de-escalated from extreme retaliatory measures in mid-May, which provided further relief to the markets. As we write this, another round of tariff letters is being delivered and President Trump is musing about firing the Fed chairman. Expect volatility, embrace any opportunities that might appear.
We have some sad news to report. On July 4th, William J. Baxter, Jr. passed away at 91 years old. He was the son of our founder, William J. Baxter, Sr., father to Bill and John Baxter, and grandfather to Claire and Billy Baxter. William graduated from Colgate as an undergraduate and then completed an M.B.A at the Columbia University School of Business in 1957. Upon joining his father’s firm later that year, he began a long and distinguished career in financial publishing. Under his leadership, the firm established one of the nation’s largest weekly economic forecasting newsletters. He also wrote and published many books covering diverse subjects, such as inflation, economics, investments, energy and weather. He had very uncommon common sense, and maintained that while successful portfolio management was simple, it was not easy. It requires foresight, discipline and planning. His written legacy, and that of our founder’s, guides our company to this day, as did his love for family, boats and pie. Especially pie. He will be greatly missed. A eulogy delivered by his son is included as a separate blog post on our website.
As a periodic reminder to our clients, we can better serve you if you help us more fully understand your needs and goals. Financial planning is not just investing; it is a comprehensive process that establishes the framework for all subsequent investment decisions. The process begins with a clear articulation of a client’s financial goals, which can range from shorter-term objectives like purchasing a home or funding a child's education to longer-term aspirations such as retirement or philanthropic endeavors. Each goal entails specific time horizons, capital requirements, and risk profiles.
Each goal requires planning. A well-constructed plan helps identify areas for savings and ensures that sufficient funds are available for both immediate needs and future investments. Furthermore, the establishment and maintenance of an adequate emergency fund, typically six to twelve months of living expenses, provides a crucial buffer against unforeseen circumstances, preventing the need to liquidate investments prematurely during adverse markets. Without this foundational understanding of personal financial health, investment decisions risk being reactive rather than strategic, potentially undermining long-term objectives. A comprehensive financial plan serves as a living document, guiding investment strategy and providing a benchmark against which progress can be measured and adjustments can be made when and if life circumstances change.
Asset allocation is the most important aspect of a successful financial plan. Many studies have underscored the primacy of asset allocation. For instance, a seminal study by Brinson, Hood, and Beebower (1986) found that asset allocation explained over 90% of the variation in a portfolio's returns for institutional pension plans, far outweighing the impact of security selection or market timing. While subsequent research has refined these findings, the core message remains: the decision of how to divide assets among broad categories is more impactful than the decision of which specific securities to buy within those categories. This strategic decision is not a one-time event but an ongoing process, requiring periodic review and adjustment. Strategic asset allocation involves setting long-term target allocations based on the client's goals, risk tolerance, and investment horizon. Tactical asset allocation, in contrast, involves making short-term adjustments to these allocations in response to market opportunities or risks. For clients, understanding this core concept means recognizing that our value in portfolio management often lies in constructing and maintaining an appropriate asset allocation strategy tailored to their unique profile.
A client's current and future income and capital requirements significantly influence their asset allocation. Clients nearing retirement, may prioritize income generation from their portfolio to cover living expenses, leading to a higher allocation to fixed-income assets or dividend-paying stocks. Conversely, younger clients with stable employment and a long investment horizon may have minimal immediate income needs from their portfolio, allowing an allocation of a larger portion to growth-oriented equities that offer higher potential for capital appreciation over the long-term. The need for liquidity also plays a crucial role. If a client anticipates a large capital outlay in the near future, such as a down payment on a house or funding a child's college education, a portion of their portfolio should be held in highly liquid, low-volatility assets to ensure the funds are available when needed. Let us know, we can help you plan.
We would never want to be intrusive, but if you think we can help, we probably can. We can help you with basic tax planning, asset allocation, asset return correlations, proper diversification and financial planning around concentrated asset exposures. We are here to help.