You Won't Believe How Our 2025 Portfolio Skyrocketed—Including Shocking Real Estate Secrets!

For the third consecutive year, investors saw impressive returns in 2025, as most portfolios performed exceptionally well. With US stocks rising approximately 18%, the overall landscape of investments thrived, although Bitcoin notably lagged behind. While the stock market's gains in 2025 were slightly less robust than the more than 20% increases seen in the previous two years, they remained solid, especially when paired with a weakening dollar that allowed international stocks to outperform their domestic counterparts.

In the spirit of transparency and financial education, I want to share the performance of our retirement portfolio for this year. Our asset allocation consists of 60% stocks, 20% bonds, and 20% real estate, broken down as follows:

• 60% stocks:
  • 25% Total US Stock Market
  • 15% Small value stocks
  • 15% Total International Stock Market
  • 5% International small value stocks
• 20% bonds:
  • 10% Nominal bonds
  • 10% Inflation-protected bonds
• 20% real estate:
  • 5% Publicly traded REITs
  • 10% Private equity real estate
  • 5% Private debt real estate

It's important to note that this is solely our retirement portfolio and does not account for accounts such as UTMAs, 529s, Roth IRAs, HSAs, or our cash reserves. Our 529 accounts saw returns of 19.95% and UTMAs at 24.06%, both benefiting from international stock exposure, while our Roth IRAs achieved a return of 24.06% through target retirement funds. Even our HSAs performed well, returning 17.14%, now nearly 100% allocated to FZROX. Interestingly, our children's portfolios outperformed ours once again, but we did manage to outperform my parents, whose portfolio is primarily in bonds, at 50%.

The Investment Game

The key takeaway for investors is that investing is fundamentally a single-player game; it's you against your financial goals. A constructive approach is to measure your returns against the inflation rate, which was just under 3% in 2025 as indicated by the CPI-U. I typically run long-term projections using a real return of 5%, meaning I generally aim for an effective return of 8% (3% inflation plus 5% real). Therefore, I assess whether my portfolio has exceeded that benchmark over the current year as well as over the past decade or two, rather than comparing my performance with that of others or popular indices like the S&P 500.

For 2025, the overall performance of our retirement portfolio, including a small cash balance plan, was an impressive 14.44%. This annualized return of 11.63% since we began investing in 2004 exceeds my traditional projection of 5% real (or approximately 8% nominal). However, it’s worth noting that future returns may not reach these heights, given the prolonged bull market we've experienced over the last 15 years.

Performance Breakdown

While a 14% return is commendable, it falls below the S&P 500's return of 18% and significantly below the total international stock index fund's return of 34%. However, we remain committed to our diversification strategy, which, over the decades, has proven advantageous. A diversified portfolio often results in underwhelming returns in some asset classes while performing admirably in others.

Stock Performance

This year, our stock portfolio yielded returns that were quite ordinary yet stable. The 25% allocated to the total stock market via VTI produced a return of 17.35%. Our investment in US small value stocks, which is 15% of the portfolio, transitioned from VBR to AVUV, recording a return of 13.63%. This transition was influenced by new investments and significant charitable donations. The Vanguard Total International Stock Market ETF (VXUS), comprising another 15%, yielded a fantastic return of 32.65%. In our 5% investment in international small value stocks, we switched from VSS to AVDV/DISV, achieving a remarkable 44.81%, although this return was also impacted by the timing of our transition.

Bond Performance

Our bond portfolio fared much better in 2025 compared to 2024, when returns were merely positive. The Federal Reserve's interest rate reductions contributed to this positive bond performance. In nominal bonds, we saw a return of 4.48% from municipal bonds along with a 4.42% return from the cash-like G Fund. On the inflation-indexed side, which makes up another 10%, our SCHP investment returned 6.66%, while our individual TIPS yielded 2.28%.

Real Estate Performance

Real estate investments performed moderately this year, especially when compared to stocks. Our allocation includes 5% on the debt side, yielding a return of 9.83%. Publicly traded equity REITs contributed a modest 3.13%, while our private equity real estate investments only realized 1.13%. The ongoing rise in interest rates has negatively impacted real estate performance over the last few years. If you're interested in more granular details on our real estate investments, I recommend subscribing to the WCI Real Estate Newsletter.

Overall, 2025 has been a fruitful year for most investors, including ourselves. Our portfolio's returns helped us achieve a 24% increase in our net worth this year, even while we gave away more money than ever before. As we continue to focus on the core activities of earning, saving, investing, spending, and giving, it’s clear that maintaining a keen eye on investing remains essential for our financial future.

How did your portfolio perform in 2025? What were your biggest winners and losers?