Morgan Stanley warns that investors need to move beyond the 'set it and forget it' approach as the market enters a new era of volatility and uncertainty.
In 2025, focusing solely on index funds may not yield the same substantial returns as in the past. 'The set-it-and-forget-it approach is over,' stated Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management. 'We can't simply set it and forget it anymore because there are new factors to consider every day.' The investment landscape is transitioning into a new era that Morgan Stanley designates as 'The Great Normalization.
' This period is characterized by potentially normalized interest rates and valuations, with equity performance driven by earnings growth and a reduced concentration on index funds.Morgan Stanley's latest investment research highlights the potential disruption caused by the announcement of DeepSeek, a China-based company, developing a powerful artificial intelligence model. This development could challenge the United States' dominance in the AI sector. Despite a 30-day tariff pause for both Canada and Mexico, the future remains uncertain beyond this period. Shalett acknowledges the unpredictability, stating that no one can definitively anticipate the market's trajectory after the 30-day reprieve.This evolving investment environment necessitates a shift in investor strategy. Shalett emphasizes the importance of diversification and acknowledging the rising risk premiums. Investors may find value in seeking out less expensive stocks where market expectations haven't been fully incorporated. In this more individualized market, alternative investment strategies such as commodities or hedge funds could potentially outperform. While tariff announcements initially triggered market declines on Monday, news of the 30-day pause with Mexico led to a rebound later that day. Advisors recommend that investors conduct a thorough assessment of their risk tolerance and equity exposure in light of potential market volatility stemming from tariff developments and other policy initiatives. 'People should always diversify their investments,' advises Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management. 'The current climate underscores the need for diversification even more.' Despite the uncertainties, Shalett remains optimistic, stating, 'We're not bearish. We're very concerned about the chaos in Washington because it's very hard to model the outcomes.'
Investment Market Volatility Tariffs Artificial Intelligence Diversification
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