Spring cleaning your investments the right way

With Lunar New Year afalling in January, many households plan to spring clean their homes pretty early in 2025.

It is also a good time to think about spring cleaning our investments. In the process, investors often turn to market commentators to get a sense of where the markets may land. But when it comes to stock predictions this year — or any year, for that matter — one word sums them up: worthless.

That’s according to The New York Times’ (NYT) market columnist Jeff Sommer. In an article titled "Wall St. Is at It Again, Making Irrelevant Market Predictions", he points out since 2000, the average gap between actual annual performance and Wall Street S&P 500 forecast consensus has been off by an average of 14.2 percentage points.

Off the back of a strong rally of the US equities in 2023, the market predictions for 2024 were also off by a mile. According to Bloomberg, at the end of 2023 Wall Street strategists had predicted a modest year for the S&P 500 US stock benchmark. Instead, the index surged more than 20% once again in 2024, locking in a best back-to-back run since the 1990s.

Forecasting is akin to crystal-ball gazing, especially when we consider the major events that were missed by market commentators. As economist John Galbraith once put it: “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.” With a healthy dose of humility, we need to admit that we all have little clue of where the markets will go over the next year.

For example, what would be your guess for the best performing asset class in the coming year. Will large caps, once again driven by fervor of mega-cap technology stocks top the charts once again in 2025, or will small-mid cap catch-up with potential tailwinds of tax cuts and "America-first" policies to be introduced by the Trump administration?

History shows it is incredibly difficult to predict and asset class winners could change over time. Between 2010 to 2024, REITs ranked as the top-3 best performing asset class 8 out of 15 times, yet, in 2020 and 2022 it ranked at the bottom of the pack.

So, what should investors do?

Dollar-cost averaging, or DCA, is the practice of investing a fixed dollar amount on a regular basis, regardless of the share price. It’s a good way to develop a disciplined investing habit, be more efficient in how you invest, and potentially lower your stress level and costs.

Many investors carry recession fears and concerns about market volatility into the new year. But this is a timely opportunity to DCA rather than stay on the sidelines and not invest at all. That’s especially because we know investing over the long term gives us the greatest odds of success.

Life-stage investing

You should also broaden your financial assessment to longer-term goals as you commit to investing regularly. Our financial needs, priorities, and goals tend to change as we progress through different phases of our lives. Life-stage investing therefore involves tailoring your investment strategy to each stage of your life.

We can broadly divide our lives into four stages. At Stage 1, we’re in our early career phase. In our 20s and early 30s, most of us do not have much financial capital, as we have only just started drawing a salary from work. This makes it the perfect time to think about long-term investments. You can better harness the power of compound interest at this stage of your life. You can also tolerate riskier investments that, over long periods of time, are most likely to generate higher returns after riding through the ups and downs of the market.

Have separate investment portfolios for your short-term and long-term goals. The difference lies in the risk profile and investment horizon, which guide the asset allocation. If you aim to make a downpayment for your first home in the near future, that portfolio should have a higher weighting in safer assets such as bonds and money market funds. For longer-term goals like retirement, the portfolio could have a 70 to 90 per cent allocation into equities, depending on your risk tolerance.

At Stage 2, we’re at our mid-career point. We usually reach our peak earnings years in our 40s and 50s, with more substantial capital, and likely more complex financial needs and goals than before.

Mid-career investors, as the “sandwich generation”, often juggle the competing financial demands of their children and ageing parents. These may include the costs of the children’s higher education and parents’ healthcare, on top of their own retirement savings.

Ensuring you and your dependants have adequate insurance coverage is one of the important considerations at this life stage. It is also prudent to build an emergency fund for scenarios such as job loss and major illnesses. Be cautious, too, that you do not let “lifestyle creep” eat into your savings.

Your portfolio at this stage should still include higher-risk assets with the potential for greater returns, because you still have several more decades to draw on your portfolio. You may also wish to start taking on more low-risk investments when you’re in your 50s. This may involve reducing the proportion of stocks in the portfolio while slightly bumping up the allocation to high-quality bonds and medium-to-low risk funds, for example.

At Stages 3 and 4, you can prepare for retirement.

Take a closer look at the viability of your portfolio and your retirement plan, including the decumulation strategy. Recalibrate them if necessary. Possible options include topping up your MPF account, channelling more of your income to savings, or delaying retirement for a few more years.

Shifting allocations towards lower-risk assets, such as short-term and intermediate-term high-quality bond funds, can safeguard your portfolio’s value even if it may not earn you robust returns. Then, spend wisely and withdraw at a rate that allows you to enjoy your golden years and also ensures the longevity of your portfolio.

So, spring clean your investments in 2024. For peace of mind in the new year, commit to strengthening your finances to meet your investing goals through the decades.

It's never too late to start investing and it's never too hard to find a team of experts who are aligned with your interests. Open an account in a few minutes and start your wealth journey on Endowus today.

This article was first published in January 2023. We've updated it in January 2025.

Read more:

• 2025 market outlook: Interest rates, Trump, and AI
• S&P 500 reaches a new all-time high. What’s next in 2025?
• How to invest your first $100,000 or $1 million

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