3 principles to invest by, whatever comes next
I recently opened a second-quarter investment account statement, not to euphoria — but relief.
Let’s not forget, U.S. equities flirted with a bear market earlier this year. There were concerns that China’s DeepSeek artificial intelligence would bring down U.S. technology titans. There were the tariffs.
Yet, here we sit in the third quarter of 2025 with the Morningstar U.S. Market Index up nearly 8% for the year and the Morningstar U.S. Core Bond Index having returned more than 3%.
Ahead of us lie multiple pathways. Economic data and earnings announcements will provide direction, but there are also “unknown unknowns” that could alter our course.
Here are three investment principles to keep in mind.
Principle 1: Where the market goes, nobody knows
Coming into the year, how many pundits talked about AI out of China challenging U.S. tech stocks? Did anyone expect tariffs to be such a factor?
Though 2025 has had its plot twists, changes in market direction are hardly unusual.
Consider that stocks came into summer 2024 on a tear, before sentiment turned. A series of releases — jobs, inflation, and earnings — compounded fears of a narrow and pricey market. Somehow, both an unexpected interest rate hike by the Bank of Japan and an expected rate cut by the Fed triggered sell-offs.
But markets recovered. Election results in November sparked a powerful rally.
So, where we go from here is anyone’s guess. But I’ll cite a story about how dead investors outperform living ones because they don’t trade. Buy-and-hold has been a great strategy for long-term investors.
Principle 2: Global investing can pay off
Some think you don’t need to own anything other than U.S. equities. But I’ll note that the Morningstar Global Markets ex-US Index has trounced its U.S. equivalent so far in 2025.
What’s behind the turnaround? The dollar weakening against many other currencies is part of the story. But markets in many regions — Europe, Latin America, and India — have roared to life this year.
To me, global investing is about casting the net as widely as possible. So, just as some argue that US-based multinationals provide American investors with global exposure, you could also argue that they’re not fully exposed to the U.S., from a revenue perspective, with a purely domestic portfolio.
Principle 3: Bonds aren’t broken
The equity market’s extreme volatility in 2025 makes bonds look like steady-Eddies.
While U.S. stocks were in free fall from late February through early April, the Morningstar U.S. Core Bond Index gained 1.3%. Bonds diversified equities, serving as portfolio ballast.
Bonds face a lot of “headline risk.” There are debt and deficit concerns. And the shadow of 2022’s “worst bond market ever” lingers.
While the risks are undeniable, fixed income is also the victim of fearmongering. Not only have bonds diversified stocks, they’re also providing above-inflation income streams. Thanks to the painful interest rate hikes of 2022-23, yields on fixed income are at levels not seen since the mid-2000s.
The road ahead
We’re likely to see more twists before 2025 is out.
Short-term asset-price fluctuations are driven by a complex interplay of variables — macro and micro, fundamental and technical.
Longer term, valuation can be a useful guide. According to my Morningstar Equity Research colleagues, the U.S. stock market looked a bit pricey coming into the second half of 2025 — not in dangerous bubble territory, but “trading at a slight premium.” The bargains cluster on the value side of the market and in smaller-cap stocks.
Meanwhile, my colleagues in Morningstar Investment Management continue to see upside in bonds and international equities. As always, a buy-and-hold mindset and a diversified portfolio remain sensible investment tactics.
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This article was provided to The Associated Press by Morningstar. For more markets content, go to https://www.morningstar.com/markets.
Dan Lefkovitz is a strategist for Morningstar Indexes.