As many South Koreans in their 50s approach early retirement, they are increasingly turning their attention to their investment portfolios. Having traditionally focused on familiar financial products and domestic stocks, Korean investors have shown a strong preference for domestic assets. However, given this heavy domestic bias, it is essential to broaden one's investment horizon to include various high-quality overseas assets.
The most significant development in 2025 is undoubtedly the inauguration of Donald Trump's second term as U.S. President. As the growth gap between the United States and other major economies widens, Trump's "America First" policy is expected to further exacerbate this divergence. The Trump administration is likely to prioritize domestic growth through tax cuts, stable energy supplies, and fiscal consolidation measures such as increased tax revenue and the creation of new government efficiency agencies. Furthermore, Trump's trade policies are anticipated to favor the United States in international negotiations. Other policies, such as those related to illegal immigration and the establishment of a dedicated cryptocurrency department, are expected to have broader economic implications.
The U.S. economy has shown remarkable resilience, continuing to post strong economic indicators even after the Federal Reserve shifted to a rate-cutting stance in 2024. In contrast, major economies like the European Union and China have experienced relatively sluggish growth. The acceleration of U.S.-centric economic growth, coupled with the Trump administration's policies, is likely to further widen this growth gap.
Given these circumstances, U.S. equities remain the preferred asset class for this year. However, the approach to investing in U.S. stocks should evolve. While the focus has previously been on the growth of AI-related big tech companies, a more balanced portfolio that combines growth and value (high-dividend) stocks is now recommended. Starting in the fourth quarter of 2024, the earnings growth of S&P 500 companies excluding the Magnificent Seven (M7) is expected to surpass that of the M7 companies. Additionally, the effects of interest rate cuts and corporate tax reductions are anticipated to benefit underperforming sectors such as financials and small-cap stocks.
Despite the S&P 500's impressive two-year consecutive annual growth of over 20%, increased volatility is expected. To mitigate potential risks from economic downturns and stock market fluctuations, investors should consider allocating a portion of their portfolios to bonds. Given the still-high interest rate environment, increasing bond allocations can provide both high interest income and capital gains from potential future rate decreases. As interest rates stabilize, expanding exposure to investment-grade government bonds in developed markets is expected to boost returns.
Considering the geopolitical tensions between the U.S. and China under the Trump administration, Indian equities warrant attention. India boasts strong economic and corporate earnings growth while being less sensitive to U.S.-China trade disputes. Furthermore, with the Indian government maintaining its economic growth forecast at 6.5-7% and the anticipation of a new interest rate cut cycle, domestic demand is expected to strengthen.
Given the ongoing uncertainties in the Middle East and intensifying trade disputes, it is advisable to hold some gold as a safe-haven asset. As major central banks have been cutting interest rates since last year, demand for gold, a traditional hedge against inflation, is expected to remain strong.
With increasing life expectancies, many South Koreans in their 50s are retiring earlier than in the past. It is crucial for these individuals to set investment goals and restructure their portfolios now. A key strategy for portfolio construction is to seek both stability and growth potential through diversification.
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