Where to invest money to get good returns in 2025.

As we enter 2025, investors inevitably cast their eyes over the finishing line and ask: What’s are the best things to invest in for 2025? In this analysis we examine what to watch out for when investing and trading in 2025.

In a few pockets of the financial markets (not ‘pockets’ as some will vehemently argue), bubbles are inflating. In other areas, prices are rather static. Many more, however, are just muddling through. The market is forever so complex and confusing, to many.

Best things to invest in and trade for 2025

Before we go into what’s likely for 2025, a quick survey of the current market landscape is in order. To start off the discussion, I highlight the current ‘Top 10 Largest Companies Globally‘. That’s because much of the exciting action is happening there right now.

Take a detailed look at the list of Top 10 largest companies worldwide (by market cap, at December 13, 2024).

Topping the list of corporate powerhouses is Apple (AAPL), currently valued at an amazing $3.75 trillion. This is followed by the AI-darling Nvidia (NVDA) at a close $3.334 trillion. Just not so long ago, these numbers are almost unimaginably large. Now a trillion seems like the billion of yesteryears . In the UK, the largest FTSE constituent is AstraZeneca (AZN), which, by comparison, is worth a (tiny?) £163 billion.

This list is extremely fascinating because of three main reasons:

1. US companies dominate the list completely. Only two non-US firms (Aramco and TSMC) managed to squeeze in the top 10.
2. Among the eight US companies, all are US tech firms. There are no US banks, no oil companies, no pharmaceuticals and certainly no miners.
3. All ten companies are valued at $1 trillion or more. The last place is TSMC valued at $1.042 trillion.

I believe, if memory serves me right, it is the first time in history a company has to be valued at $1 trillion or more to break it into the Top 10. At the eleventh place is Berkshire Hathaway (BRKA) valued at $992 billion. So close, thus it could the 11th trillion-dollar company before the year is out.

Given the size of these companies, it is not surprising to see Elon Musk’s wealth valued at (according to the Bloomberg Billionaire Index) a staggering $455 billion. As the saying goes, the ‘rich get richer’. Never truer in today’s buoyant asset market.

Source: companiesmarketcap.com (13 December 2024)

What are the implications of this list?

• For one, it tells us that US companies are outperforming the rest of the world. If we stretch the list down to 30, US companies still form the majority of these corporate titans. Only Tencent (Chinese tech) and LVMH (Europe’s largest fashion house) made it into the top-30. Investors are seemingly very optimistic about the earning power of US companies.
• Second, other US industries and sectors have a hard time catching up with US tech companies. Why? Because of widening relative growth rates. For example, few mega-cap companies are growing as fast as Nvidia and Broadcom (AVGO). This relative corporate outperformance is sucking capital and liquidity from the rest of the market into these fast-growing tech firms. Why would you buy, say, a large-cap consumer stock growing at 10-15 percent while the mega-cap Broadcom’s revenue is growing at 44 percent yoy?  
• Third, the current top-10 constituents were very much different to the list 10-15 years ago. For example, have a glance at the Top 10 in 2009 – the year when Bitcoin was created. Then, Chinese state-owned companies dominated the list, along with oil producers (Exxon, Shell, Petrobas), supermarkets (Walmart) and consumer titans (J&J). Only one tech – Microsoft – was amongst the elite 10 then. Now, only it remains from the list. The rest, for one reason or another, has dropped by the wayside.

The lesson from this brief historical comparison is clear: A Top-10 stock now may not remain so in the future. Trend changes; industries rise and fall; and the company fails to adapt.

Source: Economist (July 2009)

What’s Bullish This Year?

Given the above discussion, the assets that have been outperforming in 2024 are, unsurprisingly, concentrated in a few areas:

• Artificial Intelligence (AI) – due to the emergence of generative AI in late 2022. This new technology has transformed many sectors, like education and research. Spearheading the sector are Nvidia, Broadcom, and the usual mega-cap techs. Broadcom, for example, soared by a fifth in December 2024 as AI powered its revenue to a record level. Prices have now gained more than 400 percent over the last two years (see below). As AI proliferates, tech companies will need more a) data centres and b) power. Companies that are in joint venture deals with these tech ‘Hyperscalers’ (summary here) are seeing a sharp rise in their share prices too.

• Crypto – At $101,000 a piece, Bitcoin is valued at a mammoth $2 trillion (www.coinmarketcap.com). As Bitcoin prices surge like wild fire post-US election, crypto whales are going ‘all in’ on the asset. MicroStrategy (MSTR) is the largest public companies to do so. It leverages its balance sheet to the hilt to stack 423,650 BTC. Moreover, as Bitcoin and Ethereum create more paper wealth, the more volatile and higher-beta alt-coins exploded upwards. DOGE, for example, tripled in a few days. The speculative fever is strong in many crypto coins. Meme traders are seemingly back.
• US Stocks – By and large, the US equity market is doing very well this year. A quick glance at major ETFs (tickers: SPY, QQQ, DIA) shows high double-digit gains. The weekly trend of the blue-chip S&P 500 below reflects a firm multi-year uptrend above 6,000 (see below).

• Foreign Stocks – To be fair, not only US equity indices established new all-time highs this year. A few others like Japan (Nikkei), UK (FTSE), Germany (DAX) and India (SENSEX) – all hit new highs too. This reflected a reasonably well-received corporate earnings and benign macro backdrop. No downside surprises (yet).
• Certain commodities – like Cocoa, Coffee, Orange Juice, Gold and Silver also joined the rally. Some of these astounding price surge were driven by acute shortages specific to that commodity. For example, cocoa prices skyrocketed twice over the past 12 months due to a shortage of cocoa beans in West Africa. Meanwhile, gold’s better-then-expected advance was driven by persistent buying from central banks. Crude oil, in contrast, did not perform well as demand weakness persists.

What’s Heading Down?

While there is heady party going on in US tech stocks and crypto, investors are abandoning one particular asset class: bonds.

US bonds and treasuries have been struggling since 2021. This is due to persistent inflation. The long-end of the curve is particularly brutal. For the iShares Long Maturity Tresuries (TLT), prices failed to break north of the psychological 100 level this year, thus affirming the long-term bearish technical posture (see below).

Some latin stock markets have not done well too. Brazil (ticker: EWZ), for example, is on the verge of breaking new 52-week lows (see below). Mexico (EWZ) is also under pressure in the second half of the year. However, not all Latin markets have done badly. Argentina (ARGT) stocks did surprisingly well as the uptrend there has stayed intact throughout 2024.

What about the world’s second largest economy: China? The local stock market is under pressure post covid. The government is, in a piecemeal fashion, trying to reflate its beleaguered economy. Stock prices soared on new stimulative fiscal policy, only to regress later when investors digest the numbers. iShares Large Cap China (FXI), for instance, did bounce off its year lows, but there are multiple overhead resistance levels above.

Share Tips For 2025

Here we highlight three questions every investor should ask in 2025 and which companies may be worth a look.

1. Will those expensively valued stocks become even more expensive?

When a new idea takes flight, it can really change investor’s perception. With this, the valuation of the asset. The most fashionable theme during 2023-4 was obviously AI. Stocks that benefit from AI (like Broadcom) enjoy an immediate boost to their already-elevated stock prices. Companies that failed to live up to this lofty expectations suffered (eg, witnessed Adobe’s 12 percent plunge on subdue outlook).

FOMO will ensure those in-form stock prices keep going up. Who can afford to miss the next Nvidia? No one. Funds that avoid the so-called “MagSeven” will be deserted. So while a stock seems to be expensively valued, prices may advance further. Stocks that did 5x already may proceed to do 10x.

In financial markets, momentum matters.

And what you do not want to do during a roaring bull market is to short it. This is because markets can, in Keynes’ immortal words, ‘can remain irrational longer than you can remain solvent.’

2. What could curb the current optimism in the US stock market?

Most bull markets were crushed by ever-rising interest rates. It happened in 1989 Japan; in 1999 US and 2021. This is logical. Oceans of easy profits from stock (and crypto) markets will flow, eventually, to the real world. Witness the recent $6.2 million banana art that got eaten. Inflation rates jump higher than expected due to strong demand; and the central bank will be forced to act. When borrowing costs soar, the drag on asset prices increases. Leveraged investors are liquidated. The asset bubble breaks.

Right now, it seems we’re not there yet. On the contrary, the market is still expecting the Fed to cut rates in the final month of 2024. European central banks are already slashing rates steadily. The Bank of Canada just cut the policy rate by 50 basis points to 3.25 percent. The wild ride in stock markets may still continue into the new year given this accommodative monetary stance.

But having said, the market (specifically ‘Bond Vigilantes’) may also force the central banks to reverse course. If those already-weak Treasuries keep falling like a stone (and yields shooting up) this may cause central bankers to sit up and take notice.

Also, if China fails to rejuvenate its below-par economy, this may also cause asset prices to slow their advances due to economic linkage.

3. Where should one focus and invest now?

With the US stock market in a bull zone, perhaps that market would be a good starting point.

The relevant question is: Should one chase the already-crowded AI/tech theme? In doing so you’re moving along with the crowd. If you’re new to the game, after a two-year full-on bull trend the risk for new positions has increased significantly. Therefore joining the trend now means you need to control the risk aspect well. For example, it is much harder for Nvidia, now a $3.3 trillion titan, to move 10x in the next 24 months (to $33 trillion). The same with Bitcoin, or MSTR.

But these high-flying instruments can drop 30 percent without denting their long-term trends. Financial gravity still exists in markets. Risk discipline must be respected, as the risk-reward in 2025 will be vastly different to that in 2023.

With the wealth from stock market swelling like it is 1999, perhaps one should return to discretionary stocks. Since those gargantuan profits could be spent, eventually, on a, say, Ferrari (ticker: RACE). Perhaps those luxury stocks (LVMH, Hermes) may not do too bad if the stock and crypto rallies keep going for a few more quarters.

If you like real assets, then some commodity plays (like gold/silver miners, copper or lithium)  may not be a bad idea. Due to the cyclicality of these sectors, a bout of Chinese fiscal loosening may send these stocks higher.

Some off-the-beat markets like the UK may also provide interesting returns. Scottish Mortgage (SMT), the LSE-listed investment trust, holds a large number of US tech stocks. At £9.8, its share price is nowhere near the £15 peak. What is most interesting is that 4.8% of SMT’s asset is in the privately-owned SpaceX (acquired since 2018). The space exploration company was recently valued at $350 billion. According to some metrics, SMT’s share price is trading at 10 percent discount to its net asset value despite the £1 billion buyback earlier this year.

All in all, if you do not know where to invest given the lack of financial edge, just buy the large-cap index ETFs like S&P, Nasdaq 100, FTSE 100, DAX etc. These funds are large and diversified enough.

Lastly, some cash may not be a bad idea as interest rates are reasonably decent. Cash also give you the flexibility to buy assets at cheaper prices if a correction materialises during the year. In this volatile market, anything can happen.