If 2025 reinforced anything, it is how quickly markets can test conviction and how costly it can be to react emotionally or narrowly. 

By April 8, the S&P 500 was down 15%, driven largely by Liberation Day and the sudden imposition of global tariffs. Volatility spiked, sentiment deteriorated, and the narrative quickly shifted toward protectionism and questions around US leadership.

Then, just one day later, markets delivered a stark reminder of how unpredictable short-term moves can be.

On April 9, the S&P 500 experienced one of the largest single-day rallies in history, with the S&P 500 rising 9.5% in a single session. Note: That one-day gain is larger than the average annual return of the S&P 500 since it’s existed. Investors who had de-risked or moved to the sidelines in response to the drawdown were not there to participate.

Despite being down double digits just three months into the year, the S&P 500 finished 2025 up nearly 18%, an outcome that few would have predicted during the spring selloff.

But the more important story was not just that markets recovered. It was where the returns came from. Global markets, as measured by the MSCI ACWI index were up 23%.

The Case for Global Diversification

2025 was a powerful reminder that returns rotate, often abruptly, and often away from what has worked most recently.

• US Market (S&P 500): +18%
• International Developed ex US (MSCI World ex US Index): +33%
• International small value (MSCI World ex US Small Value Index): +40%
• Emerging Markets (MSCI Emerging Markets Index): +34%

Investors who reduced international exposure or concentrated further into US equities, often justified by recent outperformance, materially underperformed what markets ultimately delivered.

International small value in particular was one of the strongest performers globally, with the ETF we use, the Avantis International Small Value ETF, returning 50% for 2025!

The Bigger Lesson

Markets do not reward confidence in narratives. They reward discipline. Investing in all types of markets and staying invested in all Markets.

Short term drawdowns are uncomfortable. Large single day rallies are unpredictable. The investors who captured 2025 returns were not those who timed exits or chased recent winners. They were those who stayed invested, stayed diversified, and allowed markets to do what they have historically done over time.

In years like 2025, the value of diversification is not theoretical. It is measurable.

And it is earned by maintaining exposure when doing so feels hardest.

As we approach year-end, a familiar pattern begins. Financial headlines fill with confident forecasts for the coming year. Market strategists, TV pundits, and well-known investment houses will soon release their precise targets for where the stock market “should” finish in 2026.

These predictions generate attention, but they don’t generate clarity.

When you look back at previous forecast seasons, the lesson is remarkably consistent:

Market predictions, including those from highly respected experts, are usually wrong.

The Track Record No One Promotes

Each year, strategists publish projected returns for the year ahead. Put them side by side and you get a colorful collage of potential “futures” often spanning double-digit differences in expected returns.

And yet, year after year, the actual market return tends to land well outside the average forecast. Why? Markets don’t cooperate with guesses. The chart below displays the median forecast over the past eight years and the actual market returns. Almost every year the market return differs from the median prediction by 15-20%. Yes. 15-20%. The range of outcomes is almost double the average historical annual return of 10%! 

Why Forecasters Miss the Mark

Even the best models can’t anticipate the unpredictable forces that shape markets. Sudden tariff announcements, geopolitical surprises, technological innovations, shifts in interest rates, or global health events can all impact markets in unpredictable ways.

None of these show up in the glossy prediction presentations at the start of the year. Remember, markets move on new information, and new information, by definition, hasn’t been forecast.

What moves stocks is not what experts expect — it’s what they couldn’t expect.

Therefore, investors should focus on what they can control and let markets work for them through the unpredictability. 

At Hill Investment Group, this is the core of our philosophy — Take the Long View. Instead of reacting to forecasts, we help clients anchor to what actually drives success:

• broad diversification
• Minimizing expenses and taxes
  
• disciplined rebalancing
  
• evidence-based decision-making
  
• patience through inevitable volatility
  

These principles have proven far more reliable than trying to anticipate where the S&P 500 will end next December.

Private equity funds, which buy and sell companies not listed on a stock exchange, are increasingly being marketed to individual investors. The pitches promote democratizing investing by giving the average investor access to exclusive deals, huge target returns, and a chance to “invest like an institution.”

Headline returns for these investments often look enticing, but research shows that those returns rarely reflect the actual economic experience of investors. For individual investors, the gap between perception and reality can be significant.

Tradeoffs to Consider

High Fees – Private Equity Funds often charge 2% fees on all assets plus an additional 20% of all profits. This introduces a significant hurdle that few private equity managers can overcome when compared to public equity investments. The funds we use to access public markets have an average fee of 0.2%. One-tenth the fee andno additional performance fee.

Misleading Returns – Internal rate of return (IRR) is commonly used to report private equity returns. However, IRR’s calculation depends heavily on the timing of cash flows to the investor. Private Equity firms can game these numbers by manipulating cash flows, making IRR return numbers not comparable to the return numbers you see from public markets. For example, the hypothetical return stream below has an IRR of 33% but an actual return on capital closer to 3%.

Investors should focus on the overall growth of their wealth, not return figures grounded in misleading return metrics.

Lack of Access/Liquidity – Private Equity funds typically have high investment minimums, long lockups, and capital call contracts that make it difficult for investors to allocate money to more than a handful of funds. This creates challenges in diversifying investments across the private equity industry, decreasing the likelihood of achieving reliable long-term investment outcomes. The lack of diversification turns investing in this asset class closer to gambling than a reliable long-term investment strategy.

An Evidence-Based Alternative

At Hill, we believe wealth is best built through broadly diversified, transparent, and low-cost portfolios that match your personal risk profile. Public markets offer exposure to the same economic engine as private equity – global economic growth and human innovation – without the high fees and illiquidity.

New research from Dimensional Fund Advisors puts the conclusion succinctly:

“Broadly diversified, transparent, and low-cost public market strategies provide investors with reliable access to global equity and credit risk premia – without the costs and opacity of private funds.”

We agree.

The Bottom Line

Private markets are often marketed as a path to superior returns, but the data tells a different story. Historically, once you adjust for fees, misleading returns, and illiquidity, private equity performance looks a lot like public stock market performance – just with more complexity and buzzwords.

The real question here is not whether private equity occasionally succeeds – it does. It’s whether it offers long-term, risk-adjusted, after-fee advantages over public markets.

The evidence suggests: not really.

Performance Disclosure (Hypothetical)
Hypothetical or model performance results, when presented, do not represent actual client performance. Hypothetical results do not reflect the impact of material economic or market factors that would have affected an adviser’s decision-making if managing actual assets. Hypothetical results are for illustrative purposes only and should not be interpreted as guarantees of future performance. Actual client results may differ.

Charts
Charts, graphs, formulas, probability visuals, and other illustrations included in this publication are intended to demonstrate concepts and provide context. They are not intended to be used alone to determine which securities to buy or sell, or when to buy or sell them. These illustrations provide limited information and should not be relied upon as the sole basis for any investment decision.