By Robert E. Quittner, Jr. CFP® & CMFC™
Investment Advisor Representative
[email protected]
As I sat down to write this article, I was thinking about how quickly 2025 flew by and how much happened over the previous 12 months. As you know, Peter, Jeremy, Kyle, Nick, and I rotate writing the weekly Franklin Friday Report. Since this will be my last article for the year, I am going to use my time to look back at the year and look forward to 2026.
In any year, there will be plenty of noteworthy incidents and 2025 was no different. I won’t go through and recap everything that happened. Instead, I’ll focus on items that affect the investment, tax, and planning areas we work in.
The best place to start is the stock market. Coming into the year, my expectations were pretty modest. After back-to-back gains of 24% in 2023 and 23% in 2024, market history told us the odds of another banner year were low. Honestly, if we landed somewhere around the long-term average of 10.7%, I would’ve been perfectly happy.
So how did the market do? Here’s a quick month-by-month snapshot:
- January: The year got off to a good start at +2.7%
- February: Peaked near +4.5%, but settled at +1.2%
- March: Tariff concerns pulled it down –4.6%
- April: Slipped a bit more to –5.3%
- May: A small rebound to +0.5%
- June: Jumped to +5.5%
- July: Moved up to +7.8%
- August: Continued climbing to +9.8%
- September: Hit +13.7%
- October: Reached +16.3%
- November: Edged up to +16.4%
- December: Through Wednesday 12/10, sitting at +17.1%
Now that you’ve made it through the numbers, here’s the big picture:
There was a lot of noise this year and it’s important not to lose sight of what guides stock market returns. Market returns are primarily driven by corporate earnings so when companies make more money, their stock prices tend to rise. Other factors can include interest rates, economic conditions, and overall investor confidence, each of which can push markets up or down as people become more optimistic or cautious. In simple terms: strong businesses, a healthy economy, and supportive market conditions lead to better long-term returns.
Looking back to 2010, the market typically has about four down months each year. In 2025 (so far) we’ve only had two, and returns are well above the long-term average of 10.7%. In other words, despite starting the year with modest expectations, 2025 has turned out to be better than expected. We still have 2+ weeks left so we are not done yet and it could all come crashing down. On the flip side, however, we can still hope for a Santa Claus rally, too. What are the odds? I am not going to venture there and would be happy to end the year right now.
Tax planning for 2026 has been underway for a few weeks now since the government shutdown ended. Nick is putting the final touches on our updated research materials now that government agencies are putting data out again. Below are a few items to review as you close out 2025 and plan for 2026.
Tax-Loss Harvesting:
If you hold any investments in your taxable accounts that are currently down, this may be a good time to sell them and realize those losses. You can then use those losses to offset capital gains by selling appreciated positions of a similar dollar amount. This strategy can help reduce or eliminate the taxes you owe on your gains for the year. Just be careful not to sell something you like to generate a loss and then buy it back too soon. Remember the wash-sale rule! If you sell a position for a loss, you must wait 30 days before buying back the same or “substantially identical” security.
The One Big Beautiful Bill Act:
You will want to make sure you are using up all of your Standard Deduction, Over 65 deduction and Senior Bonus. I have seen this a few times over the last month. Here’s an example:
A married couple over age 65 has “taxable” income of $30,000. Their standard deduction is $31,500, their additional 65+ deduction is $1,600 for each of them, and their OBBBA Senior Bonuses are $6,000 each. Their total deductions are $46,700. If they filed their taxes this way, they would be forfeiting the additional $16,700 in deductions. They have two options to take advantage of that remaining $16,700. They could do a Roth conversion this year for $16,700. They could also withdraw $16,700 from a Traditional IRA, 401(k), 403(b), or other tax-deferred plan.
You should also check your withholding and how it changed due to the OBBBA’s Senior Bonus. I have seen numerous cases where people can lower their withholding next year due to this increased deduction.
Retirement Plan Changes and Opportunities:
- If your earned income for the year was $150,000 or more, any extra contributions you make to your employer-sponsored retirement accounts under the catch-up provisions must go into the Roth portion. Nick wrote about this the other week, but it’s important to touch on it again.
- Sticking with catch-up provisions, 2022’s SECURE 2.0 Act increased the catch-up provision for folks ages 60 to 63, providing a super catch-up contribution in their employer-sponsored plans and SIMPLE IRA. Younger workers can contribute $24,500 in 2026. Workers over 50 can contribute an extra $8,000 making it $32,500. Workers 60-63 can contribute another $3,250 on top of that, for a total of $35,750 in annual contributions.
This past year was a great one in places and a worrisome year at times, but at least as far as the market has been concerned it has been a good year. If you stuck to a good investment plan, tuned out the noise, and stayed vested you were rewarded. Wishing everybody a wonderful, safe, and joyous holiday season, and we look forward to seeing you in 2026!
Rob