Easing geopolitical and trade pressures helped to lift equities higher in June, as corporate fundamentals continued to show signs of improvement.
The US Dollar (DXY Index) fell -10.8% for the year ending June 30th, marking the sharpest first half decline for the currency since 1973. This provided a boost to US investors holding international assets, as detailed below.
The S&P 500 completed its recovery from its roughly -19% decline, making new all-time highs and standing at +6.20% YTD (S&P 500 TR Index). In June, US small cap stocks (Russell 2000 TR Index) and US large cap growth (Russell 1000 Growth TR Index) stocks rose +5.44% and +6.38% respectively.
Long-term interest rates declined from highs during the month, which helped to push major bond markets higher. The Bloomberg Barclays Aggregate Bond TR Index rose +1.54% during the month of June.
Income Opportunity in International Equities
International equity markets are enjoying a strong start to 2025, with the broad-based MSCI All Country World Ex-USA Index (“MSCI ACWI Ex-USA”) returning +17.90% in 2025 through June 30th. The depreciation of the US dollar has provided a significant boost to US investors holding US dollar denominated international exposure, adding over 9% to YTD 2025 results versus local currency international equities (MSCI ACWI Ex-USA Local Currency).
In addition to the benefits of currency diversification, there are attractive income opportunities for growth and income investors. The MSCI ACWI Ex-USA has a trailing dividend yield of 2.86%, compared the S&P 500’s trailing dividend yield of 1.28%. The S&P 500’s dividend yield is below its long-term average, reflecting underlying trends within the index. Within the S&P 500, only 14.7% of the Index has a yield greater than 3%, compared to 27.7% for the Russell 1000 Value and 45.8% for the MSCI ACWI Ex-USA Index. This largely reflects the increased concentration in more growth-focused sectors such as Technology and Communication Services within the S&P 500.
The currency diversification and higher dividend yield offered by international equities complements more growth-focused US equity exposure, a key tenant of maintaining diversified portfolios for long-term investors.
What’s on Deck for July?
As of time of writing, there is an early July deadline for re-negotiating outstanding trade deals. Progress on trade will be followed closely by investors.
The Federal Reserve Open Market Committee (FOMC) meets on July 29th and July 30th to decide any changes to policy and short-term interest rates. As of 6/30, there is a 21% chance of a 0.25% rate cut at the July meeting. The so-called “dot plots” released on June 18th indicate the FOMC is expecting to cut rates by 0.25% twice in 2025.
About the Author
Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.
Offering a 401(k) plan is a powerful way to help your employees save for retirement, but the plan’s true value is only realized when employees actively participate and regularly contribute. Employee engagement in your 401(k) plan can lead to stronger financial security for your workforce and a healthier benefits program overall.
If you’re looking to increase participation and get your employees more involved in their retirement savings, here are five practical tips that can energize engagement and make your 401(k) plan work harder for everyone.
1. Communicate Clearly and Often
Effective communication is a key component of the foundation of employee engagement. Use simple, jargon-free language to explain the benefits of the 401(k) plan and important deadlines. Regular updates via email, newsletters, and education meetings keep the plan top of mind and reduce confusion.
2. Leverage Automatic Enrollment and Contribution Escalation Options
Automatic enrollment helps increase participation by signing up eligible employees by default, while automatic escalation gradually raises their contribution rates over time. Together, these features encourage consistent saving without requiring employees to take action and potentially greatly improving engagement.
3. Provide Targeted Education
Employees can have very different levels of financial knowledge. Work with your plan advisor to offer tailored education sessions, whether beginner workshops or advanced webinars so everyone can better understand their options and make more confident decisions about their retirement savings.
4. Utilize Digital Tools and Resources
Many 401(k) providers offer online portals, mobile apps, calculators, and interactive planning tools. Ensuring that employees are aware of these resources can help them track their progress and adjust their contributions easily.
5. Highlight the Employer Match
If your plan includes an employer match, make sure employees fully understand its value. Emphasize that the match is essentially “free money” that can significantly boost their savings over time. Clear communication about the match can motivate higher participation and contribution rates.
Final Thoughts
Employee engagement can be key to unlocking the full potential of your 401(k) plan. At Confluence Retirement Plan Services, we prioritize education and ongoing communication to help employees understand and maximize their retirement benefits. Our dedicated team works closely with plan sponsors to implement strategies that drive participation, boost savings, and create a retirement plan experience that truly supports your workforce.
If you’re interested in learning more about how Confluence can help you energize employee engagement in your 401(k) plan, we’re here to help.
About the Author
Brian entered the retirement plan market in 1994 and has been working with employers and plan participants since. He realized at the early stages of his career that he enjoyed helping people and saw that working in the retirement services field gave him the ability to reach a broader audience.
Compounding is often viewed through the financial lens, but its magic can extend far beyond money and can be instrumental in shaping a richer life. In this reflection, we will explore two powerful forms of compounding that intersect in remarkable ways.
The Financial and Mathematical Power of Compounding
The Human Potential Behind Goals, Growth, and Purpose
Compounding Wealth
First, financial compounding is the amazing ability to make money with money over time. Albert Einstein famously said that “compounding interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it”.
This illustration shows us the importance of getting the process started as soon as possible. That is why time is arguably the most important variable in the compounding equation.
The Rule of 72 is a simple way to figure out how long it would take to double your money at a specific rate of return. If your money is earning 7%, dividing 72 by 7% shows your money will double roughly every 10.3 years. At 9%, $1,600,000 will double in 8 years to $3,200,000.
Fundamentally, compounding relies on rate of return, time, discipline, risk/reward, and strategic asset allocation. But the real ‘secret sauce’ is truly your savings rate. You must save consistently to unlock compounding’s full potential. For instance: setting up systematic monthly contributions to your 401(k), brokerage account, Roth IRA, 529 plan; and letting the process do the heavy lifting.
Financial freedom doesn’t come from what you earn – it comes from what you save and own.
Compounding Life: Growing Joy, Purpose, and Momentum
Wealth is not the only thing that compounds. In fact, the most meaningful kind of compounding happens when you apply the same principles to your life.
What are you really saving for?
What matters most to you?
What is your why?
Just as money compounds, so do tiny efforts in the areas that can help maximize life:
Learning something new (e.g., language, sport, hobby)
Building strong relationships (family/friends/colleagues)
Prioritizing health and mindset
Creating memorable experiences
Growing a business or team
Surrounding yourself with positive growth-minded people
Volunteering, mentoring, or giving back to others in your community
Small daily actions like reading ten pages of a book in an evening, having one thoughtful conversation, taking a walk around the neighborhood with your significant other – they may seem insignificant in the moment, but over time these tiny wins snowball into momentum, resilience, and joy.
Imagine planting a single acorn as your first “learning seed”. You water it daily by practicing that new skill or reading/asking questions or simply staying curious. At first, there is no sign of progress. But then, a shoot appears. A few leaves and a tiny tree.
Decades later, that acorn becomes a mighty oak – a living testament to your consistency and care. The leaves? They’re the skills you’ve learned, the insights you’ve gained, the confidence you’ve earned.
The Parallel Truth
Compounding in finance teaches us that lasting wealth is built quietly over time and not through quick wins. The same is true in life. Whether in dollars or days, the power of compounding rewards those who begin early, act consistently, and stay the course.
Whether you are saving for retirement or learning to play the piano, the formula is similar:
Start now. Have a plan. Stay consistent. Be patient. Water the seed!
Do you have a plan for maximizing your life? Act now.
Sources: The Psychology of Money (Morgan Housel), Rethinking Investing (Charles D. Ellis), Simple Wealth, Inevitable Wealth (Nick Murray), Mindset (Carol S. Dweck).
About the Author
Known for his professionalism and calming demeanor, Zac is focused on helping his clients reach their financial goals through comprehensive financial planning and unbiased guidance. Zac and his team support and care for the overall financial well-being of their clients.
For charitably inclined individuals, giving isn’t just about generosity—it’s also about strategy. With careful planning, your philanthropic efforts can go further, both in terms of impact and tax efficiency. Two tools often underutilized are IRA Qualified Charitable Distributions (QCDs) and Donor-Advised Funds (DAFs). When used together or independently, they offer powerful ways to amplify the tax benefits of charitable donations.
What is an IRA Qualified Charitable Distribution?
An IRA Qualified Charitable Distribution allows individuals aged 70½ or older to donate up to $108,000 annually from their traditional IRA directly to a qualified charity—tax-free. The limit is indexed for inflation and can change each year; for 2025, the maximum is $108,000. This strategy is especially valuable for those subject to Required Minimum Distributions (RMDs) who do not require the funds to sustain their retirement lifestyle.
Benefits of IRA QCDs:
The distribution counts toward your RMD but is excluded from taxable income, lowering your adjusted gross income (AGI).
Reducing your AGI may have a positive ripple effect on Medicare premiums and Social Security taxation.
It’s a direct and efficient way to support the causes you care about without itemizing deductions.
What are Donor-Advised Funds?
A Donor-Advised Fund (DAF) is a charitable investment account, managed by a sponsoring organization, that allows you to make contributions, receive an immediate tax deduction, and route grants to your favorite charities over time.
Key advantages:
Immediate deduction: You can contribute in a high-income year for maximum tax relief, then distribute the funds gradually.
Donation of Appreciated Shares: Donating appreciated securities (such as stocks) directly to charity allows you to avoid paying capital gains tax while still receiving a charitable deduction for the fair market value of the asset.
Investment growth: Contributions can be invested and grow tax-free, increasing your potential for long-term giving.
Flexibility: You choose when and where the grants go, without the administrative burden of managing a private foundation.
Privacy: DAFs allow for anonymous giving if desired.
The Strategic Power of Combining Both
While you can’t use QCDs to fund a Donor-Advised Fund directly (per IRS rules), you can use these tools in tandem to optimize both your current and future giving:
Use QCDs to satisfy RMDs and support charities directly in the near term, reducing taxable income.
Use DAFs for planning larger or future gifts, especially during high-income years, to maximize itemized deductions.
This dual approach can give you the freedom to strategically time your donations for both personal tax advantages and philanthropic impact.
How a Wealth Management Firm Can Help
Understanding how to structure your giving—especially across multiple vehicles like IRAs and Donor-Advised Funds—requires personalized insight.
Confluence Financial Partners can help clients:
Evaluate the tax benefits of charitable donations in the context of their broader financial plan
Strategically time and structure gifts for maximum impact
Set up and manage Donor-Advised Funds
Coordinate with tax and legal professionals to ensure compliance and efficiency
Our approach is tailored to your unique financial goals, values, and legacy aspirations. Whether you’re new to charitable giving or looking to enhance your current strategy, we’re here to help your generosity flow with intention and intelligence.
Let’s Talk About Your Giving Strategy
If you are curious how to integrate IRA distributions and donor advised funds into your financial plan, Confluence Financial Partners can help you explore how your generosity can go further—with clarity, purpose, and confidence.
About the Author
Gregory developed a passion for the financial services industry early in life, drawn to the meaningful impact investing and thoughtful financial planning can have on people’s lives.
The Smith family gathers around their living room—three generations in one space, from a retired patriarch to young adults just entering the workforce. They aren’t here for a holiday or a celebration. Instead, they’ve come together for something just as meaningful: a family meeting.
On the agenda? The family’s shared values, long-term financial goals, philanthropic interests, and how their wealth can serve future generations—purposefully.
This isn’t a one-time conversation. It’s a recurring practice that’s become a pillar of the Smiths’ legacy—and a powerful example of how family meetings can turn wealth building into a shared vision across generations.
Why Family Meetings Matter
We often think of generational wealth in terms of dollars passed down—but the true strength of a legacy lies in clarity, communication, and shared purpose. That’s where family meetings come in.
These gatherings create space for:
Open dialogue about wealth, values, and vision
Education for younger generations around financial literacy and responsibility
Alignment around philanthropic goals or business succession plans
Assistance in Preventing misunderstandings or disputes down the line
When done right, they can reduce uncertainty and build trust—two essentials for sustaining generational wealth.
The Role of Family Meetings in Wealth Building
Wealth building isn’t just about smart investments or tax-efficient strategies. It’s also about intentional planning that spans decades and generations. Family meetings support this by:
Clarifying goals: What does the family want their wealth to accomplish—in their lifetimes and beyond?
Preparing heirs: Future generations are more likely to steward wealth responsibly when they understand its origins and intentions.
Fostering unity: Shared decision-making can reduce the risk of family conflict and builds a stronger foundation.
When families come together regularly to revisit these topics, they can be more resilient in times of change and more proactive about their financial future.
Why You Don’t Have to Do It Alone
Leading a family meeting—especially one about money—can feel intimidating. A trusted wealth management partner can make all the difference.
At Confluence, we can help guide family meetings with:
Facilitation and structure that keeps conversations productive and inclusive
Customized agendas aligned with your family’s goals, values, and unique dynamics
Financial insights to inform key decisions about estate planning, charitable giving, and more
We serve as a neutral voice, helping to create an environment where every generation feels heard, and every goal is clear.
Start the Conversation That Builds Your Legacy
Whether you’re navigating a business transition, planning your estate, or simply want to pass down values alongside wealth, family meetings are a powerful tool. When approached with intention and guided expertise, they can become more than a discussion—they become a defining part of your family’s story.
About the Author
At the core of his personal and professional life, Greg is passionate about helping individuals and families maximize their lives and legacies. His dedication to this mission shines through as an individual, wealth manager, and leader.
April was a volatile month for stocks, bonds and currencies as investors digested the implications of rapidly changing trade policies.
After hitting a high level for 2025 on February 19th, the S&P 500 fell nearly 19% through April 8th. The index recovered from those levels, ending April down just -0.68% for the month and ending April at -4.92% YTD.
Other equity markets finished April on a stronger note, such as Developed International (MSCI EAFE NR Index) equities. The MSCI EAFE continued its strong 2025 through April, finishing the month up +4.58%, bringing YTD 2025 returns to +11.76%.
Outside of equity markets, the bond market recovered after a choppy start to April, with the Bloomberg US Aggregate Bond TR Index finishing April +0.39%, illustrating diversification benefits from bond allocations in portfolios.
US Dollar Decline
One surprise in 2025 has been the US dollar and the price movements versus other major currencies. Unlike major stock and bond markets which have recovered from late March/early April, the US dollar continues to fall versus major currencies. The US dollar depreciating, while US stocks are down, is a shift in behavior over the past 15-20 years: the US dollar had largely strengthened during times of uncertainty. The decline of the US dollar has had a significant impact on equity markets already in 2025: year-to-date international equities have outperformed the U.S. by the largest margin since 1993 (roughly 14%). While international valuations were cheaper, the shifting economic outlook and change in the US dollar made significant contributions to strong results YTD for international equities.
Investors are also weighing the impact of reduced international trade, something that is likely contributing to the US dollars decline. Any long-term reduction in trade could lessen demand for US dollars, another major long-term trend that could be shifting.
What’s on Deck for May?
Earnings for the first quarter of 2025 will be reported through May, with investors focusing on forward guidance given the changes in trade policy in 2025.
The Federal Reserve meets on May 7th, but markets are not expecting any change to interest rate policy at this meeting.
Ahead of the July extension, investors will be monitoring for any new trade deals.
Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.
Retirement planning is one of the most important financial steps you can take to help create a comfortable and secure future. Typically, the earlier you start, the better positioned you’ll be to achieve your financial goals. Whether you’re just beginning your career or are approaching retirement, having a structured plan is essential. In this blog, we’ll explore key tips for effective retirement planning, review the various savings vehicles available, and discuss how a wealth management firm like Confluence Financial Partners can help you stay on track.
Start Retirement Planning Early
We believe one of the best things you can do for your future self is to start retirement planning as soon as possible. The power of compound interest can allow your savings to grow exponentially over time, meaning the earlier you begin, the less you need to contribute later. Even if retirement feels far off, taking small, consistent steps today can make a significant impact.
For example, Mia saves $200 per month for 40 years, while Jennifer waits 10 years to start but doubles her contribution to $400 per month for 30 years. Despite contributing twice as much, with a 6% return, Jennifer would have $827,062, whereas Mia, also with a 6% return would have $987,428. By waiting just 10 years to start, even twice the monthly contribution is not enough to catchup. This demonstrates the power of compound interest—starting earlier, even with smaller contributions, can yield greater long-term benefits than larger contributions made later.
The hypothetical examples assume an 6% average annual return. These are point-in-time views and as such do not take into account any growth or loss during retirement. Without investment growth/loss during retirement, a 4% annual withdrawal rate would deplete retirement savings in 25 years. Examples are for illustrative purposes only and do not reflect the results of any particular investment, which will fluctuate with market conditions, or taxes that may be owed on tax-deferred contributions, including the 10% penalty for withdrawals taken before age 59½. Regular investing does not ensure a profit or protect against loss in a declining market. These numbers do not reflect any fees charged to the account.
Set Clear Retirement Goals
Understanding what you want your retirement to look like can help shape your savings strategy. Consider factors such as at what age you want to retire, the lifestyle you wish to maintain, and any significant expenses like travel or healthcare. Establishing clear, realistic goals will help guide your investment and savings decisions.
Understand Your Retirement Savings Vehicles
A variety of savings vehicles are available to help you build a strong retirement portfolio. Each comes with unique advantages and benefits:
Employer-Sponsored Plans
401(k) & 403(b) Plans – Many employers offer these tax-advantaged retirement accounts. Contributions to traditional 401(k) and 403(b) plans can be made pre-tax, reducing your taxable income, and in some cases, after tax into Roth 401(k). Some employers even provide matching contributions, which is essentially free money toward your retirement.
457 Plans – Available to government employees and some non-profit workers, this plan allows tax-deferred savings with flexible withdrawal options.
Pension Plans – Some companies offer defined-benefit pension plans, which provide a set income stream in retirement. These plans were common in the past, but in present times, few companies offer pension plans.
Individual Retirement Accounts (IRAs)
Traditional IRA – Contributions may be tax-deductible (dependent on one’s annual income), with tax-deferred growth until withdrawals in retirement.
Roth IRA – Contributions are made after tax, but qualified withdrawals are completely tax-free, making this a great option for long-term tax planning. Roth IRAs are only available to those earning under preset IRS levels which adjust annually.
SEP IRA & SIMPLE IRA – These plans are ideal for self-employed individuals and small business owners, offering higher contribution limits than traditional IRAs.
Self-Employed & Alternative Retirement Plans
Solo 401(k) – Designed for self-employed individuals, this plan allows for both employee and employer contributions, maximizing tax-advantaged savings.
Health Savings Account (HSA) – While primarily for medical expenses, HSAs can be used as a long-term savings tool due to their tax-free growth and withdrawal benefits. Funds are contributed pre-tax and may be used tax free for approved health related expenses. Distributions that are not used for qualified medical expenses are taxed as ordinary income and avoid a 20% penalty if you are age 65 and older or disabled. In these instances, an HSA can supplement your retirement savings approach similar to a traditional IRA.
Diversify Your Investments
A well-rounded retirement plan should include diversification across various asset classes. Stocks, bonds, mutual funds, exchange traded funds (ETFs), and other investments help manage risk while helping to optimize growth. Balancing your portfolio based on your risk tolerance, time horizon, and retirement goals can be very impactful to long-term financial success.
Work with a Wealth Management Firm
Retirement planning can be complex, and partnering with a trusted financial advisor or certified financial planner can help you navigate the process. A wealth management firm like Confluence Financial Partners provides professional guidance, helping to ensure you have a personalized strategy tailored to your unique financial situation. Here’s how they can assist:
Customized Financial Plans – Personalized strategies based on your income, goals, and risk tolerance.
Investment Management – Diversified portfolio strategies designed to grow and protect your wealth.
Tax-Efficient Planning – Structuring your withdrawals and contributions to minimize tax liabilities.
Ongoing Adjustments – Life circumstances change, and your plan should evolve accordingly. A professional team helps you stay on track to meet your retirement goals.
Stay Consistent and Review Your Plan Regularly
Retirement planning is not a one-time event but an ongoing process. Regularly reviewing your retirement savings, investment allocations, and financial goals help to ensure that you remain on the right path. Making necessary adjustments as life changes—whether due to career shifts, market fluctuations, or personal circumstances—keeps your retirement strategy aligned with your objectives.
Conclusion
Retirement planning can be essential for financial security and peace of mind. By understanding the various savings vehicles available, diversifying your investments, and working with a wealth management firm like Confluence Financial Partners, you can create a roadmap to a successful retirement. The key is to start early, stay informed, and seek professional guidance when needed. With the right plan in place, you can enjoy your retirement years with confidence and financial stability.
Ready to take control of your retirement planning? Contact Confluence Financial Partners today to begin your journey toward a secure and prosperous future.
About the Author
Chuck joins Confluence Financial Partners with 13 years of experience in the financial services industry, most recently as Director of Financial Planning at JFS Wealth Advisors. At a fundamental level, Chuck’s passion for financial planning stems from the desire to help clients connect their personal values and purpose with their financial resources.
For many parents, the desire to fund their child’s education is strong. Striking the right balance between saving for college and ensuring a secure retirement, however, requires careful financial planning. With the right strategies, families can make progress towards both priorities without unnecessary financial strain.
Why Parents Should Consider Not Sacrificing Retirement for Tuition
It’s natural to want to provide the best opportunities for your children, but delaying or reducing retirement savings to pay for college could have long-term consequences. Unlike college tuition, which offers various funding options like student loans and scholarships, there are no loans for retirement. Prioritizing your future financial security can help ensure that you won’t become a financial burden on your children later in life.
Additionally, withdrawing from retirement accounts early or reducing contributions could mean missing out on years of compound interest, potentially making it harder to reach retirement goals. Instead, parents should aim for a balanced approach that considers both short-term education costs and long-term financial stability.
Strategies for Funding Both Without Financial Strain
Achieving a balance between paying for college and securing retirement requires a well-thought-out plan. Here are some key strategies to consider:
1. Maximize Tax-Advantaged Savings Accounts
Using tax-advantaged savings vehicles can help optimize both education and retirement savings:
529 Accounts: A 529 account allows parents to save for college while benefiting from tax-free withdrawals for qualified expenses. Some states also offer tax deductions for contributions.
Coverdell Education Savings Accounts (ESAs): These accounts offer tax-free growth for education expenses, though they have lower contribution limits than 529 accounts.
Retirement Accounts (401(k), IRA, Roth IRA): Contributing to retirement accounts should remain a priority. Some retirement accounts allow penalty-free withdrawals for education expenses, but typically this should only be a last resort.
2. Encourage Student Contributions
Students can play an active role in funding their education. Encourage them to apply for scholarships, consider work-study programs, or take on part-time jobs to reduce the financial burden. Student loans are another option, and with strategic borrowing, they can help bridge the gap without overburdening the family.
3. Set a Realistic Budget and Explore Cost-Effective Education Options
Not all colleges come with a hefty price tag. Families could explore in-state public universities, community colleges, or schools that may offer generous financial aid packages. Creating a clear college budget can help costs remain manageable without derailing retirement plans.
4. Work with Confluence Financial Partners to Optimize Your Financial Plan
At Confluence Financial Partners, we can help families develop a comprehensive plan that balances saving for college and retirement. Our wealth managers can provide strategies for:
Allocating investments to optimize tax advantages
Adjusting financial priorities based on income and expenses
Identifying the best ways to use student loans strategically
Exploring alternative funding sources, such as employer tuition assistance programs
We take a personalized approach, helping you create a strategy that best aligns with your unique financial goals while helping create long-term stability for both education and retirement.
Final Thoughts
Balancing college costs and retirement savings doesn’t have to be an either-or decision. By utilizing smart financial strategies, leveraging tax-advantaged savings vehicles like 529 accounts, and working with a financial planner like Confluence Financial Partners, families can simultaneously plan for their children’s education and their own retirement. It is key to start early, plan strategically, and make informed financial decisions that support long-term financial health.
If you’re ready to create a customized plan that considers both your retirement and your child’s education, contact Confluence Financial Partners today.
About the Author
Katie has a passion for connecting with people and building relationships, which has been foundational to her work in marketing and wealth management. This passion drives her in helping clients and associates solve challenges and seize opportunities.
The first quarter of 2025 has been a period of dynamic shifts in global financial markets, marked by evolving economic policies, heightened uncertainty, and increased volatility equity markets. In this edition of Market Pulse, we analyze key investment trends, including the broad rotation from growth to value stocks, the resurgence of international equities, and the stabilizing role of fixed income markets.
Despite market volatility, history reminds us that corrections are a natural and expected part of long-term investing. The recent pullback in the S&P 500, while significant, aligns with historical trends, reinforcing the importance of diversification and disciplined investment strategies. International markets, buoyed by fiscal stimulus measures, have provided investors with new opportunities, while fixed income markets have continued their recovery.
Looking ahead to the second quarter, trade and fiscal policy developments will remain critical factors shaping investor sentiment. By maintaining a strategic and diversified approach focused on their objectives, investors can navigate uncertainty and capitalize on emerging opportunities. On behalf of Confluence Financial Partners, we thank you for your continued trust and confidence.
Bill Winkeler, CFA, CFP® Chief Investment Officer
Diversification Renaissance
• Uncertainty around the implementation of new policies and softening economic data weighed on markets • S&P 500 had its worst quarter since 2022 and its first correction (> 10% decline) since October 2023, an event that historically happens roughly 1.5 years • This sparked a rotation away from Magnificent 7 and Technology stocks to Value and International stocks, with international stocks posting their best relative quarter in over 25 years
What Happened in the First Quarter?
Investors spent the first three months of 2025 digesting the implementation of new policies, along with a shifting outlook for the economy. While “uncertainty” is often over-used, measures of uncertainty around trade and outlook for the economy spiked to very high levels, as investors sought more clarity around tariffs and related trade policies. The increase in uncertainty, combined with some softening of economic data (for example a mild increase in unemployment), helped to drive the first correction (decline greater than -10%) in the S&P 500 since October 2023. Previous market leaders – the “Magnificent 7” growth companies in the S&P 500 Index, were hit harder than the rest of the market, falling roughly -15% during the quarter. Importantly for investors, other equity markets and fixed income markets provided diversification benefits in the first quarter, and S&P 500 earnings expectations for 2025 have remained largely stable.
Diversification Means “You’re Always Having to Say You’re Sorry” The old adage for diversified investors was invoked frequently in 2023 and 2024, in an equity market led by a handful of US large growth companies. Early in 2025, diversified investors have had the chance to say “thank you”, as investors have rotated away from US large cap growth companies, into large cap value stocks, international stocks and bonds. Even within the S&P 500 Index, the Magnificent 7 Stocks fell roughly -15%, while the remaining 493 stocks in the S&P 500 Index were flat for the quarter.
Sources: Morningstar, Average S&P 500 Stock = S&P 500 Equal Weighted TR Index, US Large Caps = S&P 500 TR Index, US Large Cap Value = Russell 1000 Value TR Index, US Large Cap Growth = Russell 1000 Growth TR Index, US Small Cap = Russell 2000 TR Index, Developed International = MSCI EAFE NR Index, Emerging Markets = MSCI Emerging Markets NR Index, Core Bonds = Bloomberg US Agg Bond TR Index
The start to 2025 for international stocks has been one of the strongest in the past 25 years, as US investors benefitted from both rising foreign stock prices and the depreciation of the US dollar. International equities have been inexpensive but lacking strong fundamental catalysts, which began to change during the quarter. In Europe, Germany introduced a very large fiscal spending package to stimulate their economy, the largest in their history (exceeds the Marshall Plan and Reunification). The changing attitudes towards spending by European countries has been well received by investors.
Results for fixed income investors continued the positive trend in the first quarter of 2025 as well. After the worst calendar year in its history in 2022 (-13.01%, Bloomberg US Aggregate Bond TR index, data back to 1926), the bond index posted a gain of +2.78% in 1Q2025. This follows consecutive calendar year gains in 2023 (+5.53%) and 2024 (+1.25%). Interest rates have declined across the yield curve, with the 10-year Treasury yield finishing the quarter at 4.23%, down from intra-quarter highs of 4.79%.
Very Average Correction
In the previous edition, we noted that 2023 and 2024 were very strong years for the US equity market “The strong year for the S&P 500: 57 new all-time highs and consecutive +25% calendar year gains, was thanks in very large part to the largest companies in the index.” Early in 2025, investors were reminded that volatility is a very normal and common feature of equity market investing. From February 19th, the S&P 500 fell over -10% in less than 30 days, making it the 11th fastest correction since 1928. Quickness aside, the frequency was very average – 60th correction since 1926, the first since October 2023, right on the historical average frequency. Investors may be wondering if this will turn into a bear market (a decline greater than -20%): while no one has a crystal ball, out of the 59 previous corrections since 1926, only 17 ended up turning into a bear market (roughly 29%). The S&P 500 recently experienced a bear market in October 2022.
Source: First Trust, Bloomberg. Data from 4/29/1942 – 2/28/2025. Past performance is no guarantee of future results. For illustrative purposes only and not indicative of any actual investment. Investors cannot invest directly in an index.*Correction cycles are determined by identifying market declines in excess of the minimum declines noted above. The cycle ends when there is a recovery of the magnitude of the minimum decline needed for that correction size (i.e., a recovery of greater than 5%, 10%, 15% or 20%). After that recovery is noted, the algorithm begins searching for the next decline to start the cycle again. **Measures from the date of the market high to the date of the market low. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance.
Corrections and bear markets, along with normal intra-year declines, are the toll investors pay for the long-term results of equities. Since 1980, the S&P 500 TR Index has had average annual declines of roughly 14% every year but still finished the calendar year in positive territory 75% of the time. This illustrates the importance of staying invested during volatility and ensuring that your investment portfolio is aligned with your objectives and financial plan.
What’s Ahead for the Second Quarter?
Changes to trade policy are having a tangible effect on investor and consumer sentiment, with the potential to negatively impact economic growth. Both investors and the Federal Reserve are looking for greater clarity on how additional tariffs could be implemented, which will play a key role in any changes to the Federal Funds Rate in 2025. Within fiscal policy, any changes to tax policy in the United States are trending towards happening later in 2025, but developments there will be watched closely by investors. As discussed, international equities have benefitted from a strong fiscal impulse from Europe, with the implementation likely to be in focus during 2Q2025.
Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.
For many business owners, their company represents more than just a source of income—it is a legacy built through years of dedication and perseverance. Ensuring the continuity of that legacy requires careful, strategic planning. Business succession planning is the structured process of transitioning ownership and leadership, helping to secure long-term stability and success for future generations.
However, succession planning is not merely about selecting a successor. It involves developing a comprehensive strategy that mitigates risks, maximizes business value, and lays out a seamless transition path. Without a well-defined plan, companies may face uncertainty, internal conflict, or disruptions that could negatively impact operations. A thoughtfully executed succession plan can help business owners to retire with confidence, knowing their company is in capable hands.
Establishing a Business with Long-Term Vision
One of the most important decisions a business owner can make is whether they are building their company for longevity or positioning it for sale. This fundamental choice can influence leadership development, financial planning, and operational strategy.
When a business is designed solely with an eventual sale in mind, decision-making tends to prioritize short-term gains over long-term stability. Cost-cutting may take precedence over investing in innovation, employee growth, and customer relationships. While this may enhance financial performance in the short term, it can leave the business fragile and ill-prepared for a smooth transition of ownership.
Conversely, a company built with the future in mind can be better positioned to withstand the challenges of leadership transitions. Owners who focus on long-term success tend to make strategic investments in their workforce, establish strong corporate values, and implement scalable systems that help ensure adaptability in a changing market. These efforts can not only help strengthen the business but also can enhance its appeal to potential successors, whether they are internal leaders or external buyers. Ultimately, businesses with a legacy-driven approach are better positioned to thrive across generations.
Key Components of a Successful Business Exit Strategy
Ultimately, a business owner will likely want to exit the business through a well-thought out plan. If the business is going to survive into the future, the business exit strategy should carefully examine all aspects of the transition. Here are a few key components:
Determine Exit Options – Whether transitioning to a family member, a trusted employee, or an external buyer, determining the best exit option is critical. This process should involve evaluating potential successors based on competency, leadership qualities, and alignment with the business’s long-term vision.
Financial Considerations – A successful business succession plan requires a thorough evaluation of both personal and business finances. Ensuring the company remains financially viable post-transition is essential, while also aligning the owner’s personal financial goals, such as retirement planning and wealth preservation, to secure long-term success.
Tax and Legal Considerations – Transferring ownership could come with complex tax and legal implications. A well-structured plan can help minimize tax liabilities and avoid potential legal pitfalls.
Leadership Transition – Preparing the next generation of leaders should include a structured transition period, during which the successor is trained and gradually assumes leadership responsibilities.
Contingency Planning – Unexpected events can arise, so having contingency plans in place helps the business continue operating smoothly under unforeseen circumstances.
The Role of a Wealth Management Firm in Business Succession Planning
Navigating the complexities of business succession planning often requires professional guidance. Partnering with a wealth management firm like Confluence Financial Partners can be invaluable in creating a smooth transition. Our team of financial professionals can assist with various aspects of the process, including:
Comprehensive Financial Planning – Guiding a business owner in determining a sale price that makes sense and allows them to reach their financial goals. A wealth manager can also assist in the owner’s financial life post sale by developing strategies to protect and grow wealth.
Working with Other Professionals – Collaborating with legal, tax, and financial experts to structure the transition in a way that minimizes tax burdens, maximizes financial efficiency, and helps ensure a seamless ownership transfer.
Investment Management – Developing a strategic investment plan to help business owners grow and protect their wealth, and helping to ensure financial security both before and after their exit.
Securing Your Legacy for Future Generations
Business succession planning is not a task to be postponed. Proactively creating a structured exit strategy can help enable a seamless transition, safeguard your company’s legacy, and provide financial security for both you and your successors. Working with a trusted wealth management firm can also simplify the process and help ensure that your business remains strong for generations to come.
If you are considering business succession planning, we encourage you to take the first step. Contact Confluence Financial Partners today to discuss crafting a customized succession planning strategy tailored to your unique business needs.
About the Author
At the core of his personal and professional life, Greg is passionate about helping individuals and families maximize their lives and legacies. His dedication to this mission shines through as an individual, wealth manager, and leader.
