Welcome to our June 2025 Viewpoints, a monthly bulletin from PDS Planning to our valued clients and friends. Our goal with each issue of Viewpoints is to provide you with a wide variety of perspectives on life and wealth. Feel free to share with others.
Starting Rate and Future Returns
When it comes to bond funds, one of the most successful ways to predict future returns is by looking at the starting yield. The chart below plots the starting fixed income yield along the x-axis while the y-axis plots the subsequent annualized 5-year returns. The R squared value of 88 means that, since 1976, total returns in the US Aggregate bond index can be explained by the starting yield for each period 88% of the time. Based on today’s yield of 4.52%, a fair 5-year return expectation is around 4.58% based on the chart below.
Interest Rate Cuts and Historical Performance
The stock market during the first half of 2025 was defined by market volatility. It can be difficult in these moments to let the portfolio be, but staying the course is important. The Fed has been paused on any interest rate changes since December 2024 and they typically keep the length of pauses short (left side). On the right side of the chart, historical 12 month average performance is plotted beginning once rate cuts resume. Cash, understandable, posts poor performance. However, the other primary asset classes have gone on to perform extremely well. It’s certainly no guarantee for today’s situation, but a reminder of the importance to sticking with the long-term investment plan.
Humans vs AI
A survey conducted by Stanford and the World Bank asked workers using AI how much time it takes them to do their tasks with and without generative AI. The graphic below (click to enlarge) shows the amount of time saved for each task using AI as a tool to help. While there’s no doubt the use of AI can save workers significant minutes in their day, this does not take into account the quality of the work or ultimate decisions being made. At the outset, it seems like a very positive chart. Workers are increasing efficiency and maybe can free up more time for themselves. But looking at the categories further, if AI saves nearly an hour for critical thinking…is it really even critical thinking anymore? If you’re a proponent of AI, you can see the time saving benefits. If you’re against the quick adoption, the questions you might ask are about the quality of the critical thinking or the validity of AI making judgement calls.
Wars and the Stock Market
This is focused on markets and investing only. None of this is to downplay the humanitarian consequences in the region, which are the most important issues. In the near term, oil prices are directly impacted by events in the Middle East, both due to oil production in the region and critical transportation routes. While oil prices did jump slightly during the initial strikes, they have since fallen on news of a ceasefire. For this reason, the impact on broader markets and portfolios has been minimal so far. A broader concern that some investors may have is whether regional conflicts might spiral into global ones, particularly given the direct U.S. involvement. While this possibility always exists, the likelihood seems to have fallen dramatically. In any case, history suggests even a worst-case scenario is potentially not a reason for investor fear, as can be seen in the chart below.
IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PDS Planning, Inc. [“PDS”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from PDS. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. PDS is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the PDS’ current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.pdsplanning.com. Please Note: PDS does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to PDS’ web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a PDS client, please contact PDS, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
