The market just gave investors a gift. Here's how not to blow it, according to investing experts
"You got a gift from the market gods," said David Schassler, VanEck head of multi-asset solutions, on last week's "ETF Edge."
"We want to see people diversify, diversify internationally and into real assets as well, specifically gold and if you're into it, also diversify into bitcoin," he said.
Some investors already got the message early in 2025, as the period from January to April saw most major markets around the globe leave U.S. stocks behind in performance. Vanguard's Total International Stock Index ETF (VXUS), as an example, has net inflows of over $6 billion this year, according to ETFAction.com, which places it No. 11 among all ETFs in flows this year. But to put that into perspective, Vanguard's S&P 500 ETF (VOO), is now over $63 billion in inflows this year.
In fact, VOO is on pace to blow away the record for annual inflows it set just last year.
As investors who bought the dip in U.S. stocks are rewarded, ETF experts say those who have stuck with an S&P 500-heavy tilt and didn't enjoy the drawdown experience of April should still use this opportunity to look at portfolio balance. "If your portfolio is predominantly U.S. [stocks], we want to see you diversity in international as well as emerging markets," Schassler said.
Investing icons of the recent past, from Warren Buffett to Jack Bogle of Vanguard Group, broadcast a message that focusing on U.S. stocks over the long-term is the best bet. Bogle, in particular, often said the S&P 500's multi-national corporate makeup delivers plenty of overseas revenue itself. But even Buffett has been lightening up on some big U.S. market positions, while adding to more of his more recent bets on Japan.
"We're not anti-U.S., but just saying if you are predominantly invested in the U.S., you probably want to invest outside as well," Schassler said.
Valuation in the S&P 500 remains a primary concern for experts who say this is a good time to make sure a portfolio is properly diversified. According to Schassler, with the recovery in stocks, the U.S. market is "priced richly."
He added that even as recession risks have declined after the U.S.-China temporary trade truce, the risks remain higher than the historical baseline. "We're not calling a recession, but risk is high," he said on "ETF Edge."
The price to earnings ratio in U.S. stocks reinforces the message that there is "lots of value overseas," he added.
In Schassler's view, the big shift in U.S. government policy on a global basis is also a secondary catalyst for more diversification. As the world becomes more bifurcated, and countries are forced to move forward on their own and push their own growth, investors are in a backdrop that favors more growth from lower valuation international stock markets, he said.
Todd Rosenbluth, head of research at VettaFi, said on "ETF Edge" that this year has shown more investors embracing international diversification, though he added that we are "not fully seeing it" in the market yet. He also says investors should use this moment to be mindful of the concentration with their U.S. stock holdings.
"The flows have certainly been favoring the U.S. and investors been buying the dip are being rewarded," Rosenbluth said. "We've seen growth equities rebound much more strongly, those tech and consumer discretionary oriented sectors," he said.
The iShares S&P 500 Growth ETF (IVW) is up nearly 18% in the past month, while the iShares S&P 500 Value ETF (IVE) is up about 8%, according to ETF Action.
Rosenbluth says a good way to deal with the valuation and concentration risk within a U.S. portfolio is to invest in a "quality" stock funds, such as VictoryShares' Free Cash Flow ETFs.
"We might not see this rally continue on the growth side so you want to have balance in the portfolio," Rosenbluth said.
Both ETF experts said as global trade sentiment improves, investors should look at China and India as part of any international diversification plan.
Schassler said China is aggressively stimulating its economy, and India is one of the best growth stories in the world "like China 20 years ago," he said. "Having China and India exposure makes sense," he said.
Rosenbluth said there was strong interest in China at the beginning of the year, and in ETFs such as KraneShares' CSI China Internet ETF (KWEB), but he described that momentum as now "faded."
KWEB is still a good option for investors interested in China in this environment, Rosenbluth said, because it is still one of the largest of the China-focused growth-oriented ETFs, and is less likely to be negatively impacted from China tariffs. It is a "China-only" story as opposed to a broader Chinese stock fund with exposure to multi-national businesses. KWEB is up 14% of the past month, and in the past week it saw close to $100 million in flows, compared to net outflows over $800 million during the prior three months, according to ETF Action.
On India, there are multiple options for investors, including the iShares MSCI India ETF (INDA), as well as Van Eck's Digital India ETF (DGIN).
Schassler said the structural growth story in India is the reason to invest. "You've got a huge population, it's tech savvy, well-educated, and the government is supporting the economy, so everything lines up there for a growth story," he said.
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Forbes
23 minutes ago
- Forbes
The Best Brokers For Saving On Capital Gains Taxes
Y ou make money in the market but tell the IRS you're losing money. Yes, this works—for a while . Direct indexing with loss harvesting looks like a bonanza, for both providers and customers. Is it? Short answer: Yes, but. Yes, you can do nicely with this scheme, more than covering the fees charged. The two buts: (1) Before getting in, think about what's going to happen on the way out. Below I will present a cautionary tale about the resulting mess. (2) Take any vendor's projection of tax savings with a grain of salt. Providers evidently see gold here. In recent years Vanguard, BlackRock, JP Morgan Chase and Morgan, Stanley have bought their way into the business. Wealthfront, a Palo Alto, California robo-adviser, has made a great success democratizing automated loss harvesting and aims to go public in the near future. Frec, a newer San Francisco firm and something of a Wealthfront knock-off, has shaken up the business with an insanely low-cost offering. Direct indexing means owning the S&P 500 or another index not via a fund but via individual stock positions. Instead of putting $100,000 into the Vanguard S&P 500 exchange-traded fund you buy 42.4 shares of Nvidia, 13.7 shares of Microsoft, 0.33 shares of Westinghouse Air Brake Technologies and so on. Or rather, a computer does the buying. Periodically the computer plucks out losers to sell for a capital loss, replacing them temporarily with substitute stocks that behave similarly (Merck for Pfizer, perhaps). After 30 days have passed, the original position can be restored without creating a loss-killing wash sale. You sit on the winners for as long as you can. We are, of course, talking about money in taxable accounts. There is no point to direct indexing inside an IRA or 401(k). A direct indexing account typically has between 200 and 400 stocks. You don't need more than that to do a decent job of tracking an index with 500 stocks in it. Parametric Portfolio Associates was a pioneer in this business, originally offering the tax dodge to wealthy clients paying for custom portfolio management. Its direct-indexing skills (and the large footprint of Morgan Stanley, which picked up the company when it acquired Eaton Vance) explain Parametric's $400 billion of assets under management. The prevalence of fractional shares and the automation of financial advice mean that little people can now get in on the action, with as little $5,000. What kind of capital losses do you get? That will depend on the direction and the volatility of the market. Over a decade, Wealthfront reports, capital losses have averaged 2.6% to 3.3% per year for its clients, but there is a great deal of year-to-year variation. People who put money in at the beginning of 2022 got a gusher of losses in the ensuing crash, but then they would have been better off waiting for a year and doing without the tax goodie. Remember that your aim with loss harvesting is not to have losses. It's to have gains but report losses. Suppose you have a plump capital loss to put onto your tax return. How much good does that do you? This is a function of your tax bracket and your other investing activity. Capital losses can absorb any amount of capital gains and, beyond that, can be written off against up to $3,000 a year of ordinary income like salaries. Unused losses can be carried forward indefinitely but expire with the taxpayer's death. It is reasonable to expect that the tax benefits will, in the early years of a direct indexing account, more than pay for the fees, which are usually in the range of 0.1% to 0.4% a year. But at some point, perhaps after five years of a mostly bullish market, or later if stocks go sideways, you will have nothing but gain positions. Note that someone who bought in 2015 would not have derived much tax benefit from the crash of 2022 because even at its low point that year the market was twice as high as in 2015. This matter of loss exhaustion brings me to the first caveat about fancified indexing. What are you planning to do when it's time to move on? To illustrate, I will cite the case of a Forbes reader that I will identify as Mr. X. X signed up for a separately managed account with a financial advisor who was using direct-indexing software. Recently, with most of the potential losses captured, he quit the advisor and deposited the stock at a discount broker. He asked me: Now what should I do? X is sitting on an interesting pile of shares. He owns Nvidia at a $12 entry point, and should let that position ride. So, too, with gains in Taiwan Semiconductor, Broadcom and Microsoft. But he's got 140 positions that are now underwater or showing small gains. It would be nice to declutter. Some of these clunkers will be easy to dispose of. Pepsico, Nike, Pfizer—no problem. But what about PT Bank Raykat or Airports of Thailand? These American Depositary Receipts trade over the counter, which is to say, not on Nasdaq or the New York Stock Exchange. On Yahoo Finance I recently saw the airport ADR with an average daily trading volume of 993 shares and a frightful bid/ask spread of $9.52 to $12. X could sell all the cats and dogs, but would probably get hosed on the OTC shares. Apart from their sometimes larcenous bid/ask spreads, unlisted shares may not qualify for commission-free trading. Another problem: Odd lots (less than 100 shares), of which X has more than 400, are sometimes hard to trade. This junkpile cries out for all-or-none orders (you don't want a trade to turn an odd lot into an odder one). But combining that restriction with a price limit increases the chance that an order simply won't be executed. X did walk away with a fat loss carryforward, which may come in handy some day, but is likely to spend many hours cleaning up. Here's someone commenting anonymously online on direct indexing: 'I made a big mistake doing it in a Wealthfront account and when I wanted to consolidate holdings with another firm, I had to manually sell 195 securities. Stick to broad index ETFs!' I don't entirely agree with that sentiment. Direct indexing makes sense if you have plans for the end game and if you stick to large U.S. companies. I'll go this far with the Wealthfront critic: You should get your small-stock and foreign exposures via ETFs. Now let's look at the second caveat, which is to understand the value of a capital loss. Wealthfront says that, over the past decade, it has captured $3.5 billion of losses for its customers, 91% of them short-term. (These figures include earlier versions of tax-wise automated investing as well as the more recent direct indexing product.) The losses, it declares, have saved people an estimated $1 billion in taxes. Fine print: The estimate assumes that all of the short-term losses went to use, immediately, against short-term gains. This is unrealistic. Someone with a $100,000 account generating $3,000 of capital losses, and with no capital gains to report, can indeed use the $3,000 against ordinary (that is, high-taxed) income. But someone with a $1 million account generating $30,000 of capital losses is unlikely to be using all that against high-bracket income. It would require having at least $27,000 of short-term capital gains. People do not have short-term capital gains unless they engage in foolish behavior, such as investing in a hedge fund. Rational investors do, however, have long-term gains to report. They get them from employer stock, sales of homes, all-cash takeovers and unwanted capital gain distributions from mutual funds. Realistic assumptions for big-ticket investors: You will be using most of your capital losses, whether short or long, to absorb long-term gains. You may find yourself using a loss long after you harvested it. The top rate on long gains is 23.8% plus whatever your state grabs. Conclusion: Losses are valuable but not as valuable as advertised. Now here are some product reviews. Wealthfront This one is my favorite. It offers a direct-indexed S&P 500 account at a bargain-basement 0.09% annual fee, with a $5,000 minimum. Frec In a price war with Wealthfront, this outfit has the same 0.09% fee for the S&P 500 direct deal, with a $20,000 minimum. It gets a runner-up status because it's newer and smaller. It oversees $350 million to Wealthfront's $80 billion. Frec has some interesting variations on the theme, including a Sharia-compliant index portfolio at 0.35%. Fidelity Its direct-indexing product uses 250 or so stocks to mimic the Fidelity Large-Cap Index (similar but not identical to the S&P 500). The annual fee is 0.4%, with a $5,000 minimum. When the harvesting wears out you can transfer the collection of stocks to a no-fee brokerage account. Forty basis points is a lot. But using this service could make sense if you have other money at Fidelity, which oversees (in custody or management) $15 trillion. It has a powerful brokerage platform and the oldest and biggest broker-affiliated donor-advised charity fund. Exit plan: Offload your long-term winners onto the charity, which will take them, fractional shares included, with a few mouse clicks. Schwab Charles Schwab has a 0.4% direct indexing product (minimum, $100,000) and a charity fund similar to Fidelity's. Vanguard This firm invented retail-level indexing and is known for its low costs. Four years ago it spent an undisclosed sum of money (your money, if you are a Vanguard customer; it's a mutual corporation) to acquire direct indexer Just Invest Systems. So, what's on offer? I can't find an answer on the Vanguard website, which has only a vague description of direct indexing aimed at financial advisors. The company did not respond to a press inquiry. A few weeks ago former shareholders of Just Invest sued Vanguard, claiming they were double-crossed on a performance payout. Could be a while before we see a competitive offering from the indexing king. More from Forbes Forbes Is Your Broker Gouging You? Use This Guide To The Best Buys In Money Markets By William Baldwin Forbes How To Boost Your Cash Yield At Fidelity, Vanguard, Chase And Schwab By William Baldwin Forbes How To Use Gold And Other Hard Assets To Hedge Against Inflation By William Baldwin Forbes Inside Private Equity's $29 Trillion Retirement Savings Grab By Hank Tucker
Yahoo
40 minutes ago
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The S&P 500 Is Going to Plunge at Least 30%, Based on What a Forecasting Tool With a 100% Historical Success Rate Has to Say
Key Points The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average have endured a roller-coaster ride of highs and lows since the year began. A time-tested valuation tool capable of providing the closest thing to an apples-to-apples comparison as investors can get is offering one of its loudest warnings ever. Time in the market has consistently trumped trying to time the stock market's downturns. 10 stocks we like better than S&P 500 Index › It's been a roller-coaster ride for Wall Street and investors through nearly seven months of 2025. In early April, the wheels fell off the wagon, with the benchmark S&P 500 (SNPINDEX: ^GSPC), growth-inspired Nasdaq Composite (NASDAQINDEX: ^IXIC), and iconic Dow Jones Industrial Average (DJINDICES: ^DJI) plunging. In a two-day period (the close of April 2 to the end of April 4), the S&P 500 registered its fifth-worst two-day percentage drop (-10.5%) since 1950. One week after this chaos began, all three major stock indexes recorded their largest single-day point gains in their respective histories -- and they haven't looked back. The broad-based S&P 500 has rallied by more than 25% in just three months for only the sixth time in its history and surged to a record high. Meanwhile, the Nasdaq Composite has surpassed 21,000 for the first time, with the Dow just 4 points away from an all-time closing high, as of July 23. Between the hype surrounding artificial intelligence (AI) and President Donald Trump's administration working out a couple of key trade deals, it would appear nothing can slow down the stock market. But looks can be deceiving... Wall Street's benchmark index is primed for a history lesson Let me preface any and all discussion regarding forecasting tools with this warning: Nothing is guaranteed on Wall Street. Even predictive tools and correlative events that have, historically, been 100% accurate in the past can't concretely guarantee what'll happen in the future. With the above being said, a 100% historical success rate in forecasting future stock returns is generally something investors should pay attention to. At any given time, there are one or more headwinds threatening to drag the stock market lower. Uncertainty regarding President Trump's tariff and trade policy, the potential for the prevailing rate of inflation to pick back up, and Moody's downgrade of the U.S. credit rating to AA1 from AAA are all examples of downside catalysts that can spark a stock market correction, bear market, or crash. But among this laundry list of potential problems for stocks, perhaps nothing is more worrisome than valuations. Most investors rely on the time-tested price-to-earnings (P/E) ratio when quickly assessing the relative cheapness or priciness of a given stock. A company's P/E ratio is calculated by dividing its share price by its trailing-12-month earnings per share (EPS). It's a handy tool for evaluating mature businesses, but it often falls short with growth stocks and during recessions when corporate earnings are temporarily disrupted. The valuation tool with an uncanny track record -- i.e., 100% success rate -- of forecasting future stock returns is the S&P 500's Shiller P/E Ratio, which is also known as the cyclically adjusted P/E Ratio, or CAPE Ratio. Rather than accounting for 12 months of trailing EPS, the Shiller P/E is based on average inflation-adjusted EPS over the trailing-10-year period. Accounting for a decade of EPS and adjusting it for inflation minimizes the impact of economic shock events, which allows for the closest thing to an apples-to-apples comparison as investors can get. As of the closing bell on July 23, the S&P 500's Shiller P/E Ratio stood at 38.79, which is just fractionally below its high for the current bull market of 38.89, set in December. To put this figure into context, it's the third-priciest continuous bull market when back-tested to January 1871. The only higher readings were observed prior to the dot-com bubble (an all-time peak of 44.19 in December 1999), and immediately prior to the start of the 2022 bear market (just above 40 during the first week of January 2022). When back-tested 154 years, the Shiller P/E has surpassed a multiple of 30 just six times, including the present -- and this is where historical precedent comes into play. Following the previous five occurrences where the Shiller P/E topped 30, the S&P 500, Nasdaq Composite, and/or Dow Jones Industrial Average fell between 20% and 89% (this latter figure is a Great Depression outlier). What this signals is that extended valuations aren't well tolerated by Wall Street over an extended period. Furthermore, none of these five 20% (or greater) pullbacks in the broader market found their respective bottoms with the S&P 500's Shiller P/E higher than 27. In other words, the minimum historical expectation is for the Shiller P/E to retrace to 27. Were this to occur, the broad-based S&P 500 would need to lose about 30% of its value. Based solely on what this valuation forecasting tool tells us, Wall Street's benchmark index can lose 30% of its value at some point in the presumed not-too-distant future. Time in the market consistently trumps trying to time the market Thankfully, history is a pendulum that swings (disproportionately) in both directions. Although sizable moves lower in the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average can play on the emotions of investors, time and perspective have a way of rewarding those who exercise patience and focus on the horizon. Every year, the analysts at Crestmont Research refresh a published data set that examines the rolling 20-year total returns (including dividends) for the S&P 500 that dates back to the start of the 20th century. Despite the S&P not officially being incepted until 1923, researchers were able to tabulate total return data by tracking the performance of its components in other major indexes back to 1900. This yielded 106 rolling 20-year periods (1900-1919, 1901-1920, 1902-1921, and so on, to 2005-2024). What Crestmont's calculations show is that all 106 of these rolling 20-year periods produced a positive total return. Hypothetically (because an S&P 500 index fund has only existed since 1993), if an investor had purchased an S&P 500 index fund at any point between 1900 and 2005 and simply held this position for 20 years, they would have generated a profit, including dividends, 100% of the time. What's particularly powerful about Crestmont's analysis is these positive returns occurred despite numerous recessions, a few economic depressions, two pandemics, and multiple wars. No matter how dire things seemed for Wall Street at any given moment, investors who held for 20 years always came out ahead. To build on this point and demonstrate how important time in the market is relative to trying to time its inevitable downturns, let's take a closer look at another data set published by Bespoke Investment Group on X (formerly Twitter) in June 2023. The data set you see above represents a comparison of the calendar-day length of every S&P 500 bull and bear market since the start of the Great Depression in September 1929. The 27 bear markets in the broad-based index spanning nearly 94 years (until June 2023) lasted an average of 286 calendar days, or less than 10 months. In comparison, bull markets have averaged 1,011 calendar days, or approximately 3.5 times longer than the typical bear market. Further, the longest S&P 500 bear market since the Great Depression endured for 630 calendar days in the mid-1970s. Including the current bull market (extrapolated to present day), more than half (14 out of 27) of S&P 500 bull markets have lasted longer than 630 calendar days. If the Shiller P/E correctly forecasts a 30% decline in the benchmark S&P 500, long-term-minded investors should use it as an opportunity to invest for their future, knowing that time and history are firmly in their corner. Should you invest $1,000 in S&P 500 Index right now? Before you buy stock in S&P 500 Index, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and S&P 500 Index wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $636,774!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,064,942!* Now, it's worth noting Stock Advisor's total average return is 1,040% — a market-crushing outperformance compared to 182% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 21, 2025 Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Moody's. The Motley Fool has a disclosure policy. The S&P 500 Is Going to Plunge at Least 30%, Based on What a Forecasting Tool With a 100% Historical Success Rate Has to Say was originally published by The Motley Fool
Yahoo
an hour ago
- Yahoo
The V-shaped recovery in stocks is a V-shaped recovery in earnings: Chart of the Week
The S&P 500 (^GSPC) notched five record highs in as many trading days last week, capping off what's now a 28% rally since reaching this year's lows on April 8. This V-shaped recovery in the benchmark index marks the second-fastest rebound from a drawdown of at least 19% in the last 75 years, according to data from Creative Planning's chief strategist Charlie Bilello. A massive move in the index from a low of 4,987 to Friday's closing price of 6,389 has formed a large V shape in the S&P 500 2025 chart. Sign up for the Yahoo Finance Morning Brief By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy And though questions may linger for some as to what, exactly, is driving the market higher, the V-shaped recovery in earnings expectations that has accompanied this rebound in the market makes this rally make a whole lot more sense. Data from Morgan Stanley's chief investment officer Mike Wilson shows that earnings revisions breadth — or the ratio of companies raising forecasts to those cutting forecasts — has rebounded as dramatically as, and in lockstep with, the S&P 500 itself. "Many market participants do not appreciate how strong this very fundamental driver has been over the past several months," Wilson told Yahoo Finance. After tanking as analysts assessed the impact of President Trump's initial "Liberation Day" tariffs, earnings revisions have been soaring. And early returns this earnings period have backed up this optimism. With 34% of the S&P 500 having reported results, earnings in the second quarter are on pace to grow 6.4%, up from the 5% expected on June 27, per FactSet data. Estimates for year-over-year earnings growth in the final two quarters of 2025 and for the full year 2026 have been moving higher. As of July 25, FactSet data showed analysts expect the S&P 500 to grow earnings by 13.9% in 2026, up from the 13.8% that had been expected a month ago. Wilson notes these revisions lead actual earnings estimates and that the current recovery in the outlook is rivaled only by the pandemic-era rebound. That period, Wilson adds, is "the last time we were so out of consensus on the market." The rebound in earnings revisions "helps to not only justify the rally to date, but also why we remain bullish on the next six to 12 months," Wilson added. "We are currently experiencing one of the strongest V-shaped recoveries in history, rivaling the COVID rebound in 2020, the last time we were so out of consensus on the market," Morgan Stanley's chief investment officer told Yahoo Finance. Wilson's chart is one of several in Yahoo Finance's upcoming Chartbook, which will be published Tuesday morning, that help explain why the S&P 500 has roared back to all-time highs despite persistent fears Trump's tariffs could derail earnings growth. Recent signs of feverish speculation in the market, notably the meme stock resurgence, could be a reason for caution. And valuations have also been on the rise — the S&P 500 is now valued at 22.4 times next year's earnings, above the five- and 10-year averages of 19.9 and 18.4. But the simple fact is that, to this point, tariffs haven't had the broad impact on corporate earnings and the US economy that many had feared. And what's more, arguably the most important driver of stock prices is again on the rise. Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer. Click here for in-depth analysis of the latest stock market news and events moving stock prices Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
