JANUARY 2025 Newsletter: Outlook 2025: Pragmatic Optimism

As we begin the new year, we offer the following perspective from Mark Zabicki, CFA and Chief Investment Officer at LPL Financial:

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LPL Research is pleased to presentOutlook 2025: Pragmatic Optimism.Our annual update offers a complete comprehensive analysis of the economic and market environment and highlights potential implications for investors and their portfolios.

Looking back on 2024, it clearly echoed many of the themes from 2023. There were some brief economic growth scares along the way, but the broader economy continued to defy expectations and surprised once again to the upside. Stocks continued their strong performance, putting the S&P 500 on track to record its second consecutive year of 20% plus returns. Powerful trends in artificial intelligence and technology have continued unabated and largely overshadowed other factors like election uncertainty, continued geopolitical tension, and some rich stock valuation levels. After the election, the anticipation of potentially market-friendly policies from the incoming administration also helped to bolster stocks.

The bond market, in contrast, experienced another lackluster year. While the Federal Reserve (Fed) initiated a long-awaited easing cycle, policy ambiguity and uneasiness over rising debt levels led to increased volatility in bonds, but no clear directional trend.

As we look to 2025, we remain cautiously optimistic. We’re cautious because no market environment is ever permanent, yet optimistic since constructive long-term technology trends are in place. Plus, potential tax policy and deregulation efforts in 2025 could provide some tailwinds — particularly from an economic perspective. While growth asset returns are not expected to be as robust in 2025, the investment environment should prove to be favorable for investors.

These are just some of the insights you'll find inOutlook 2025. The full report, combined with guidance from your financial advisor, will help you navigate through market complexities and crosscurrents and continue to work toward achieving your goals.

^{This material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts may not develop as predicted. Please read the fullOutlook 2025: Pragmatic Optimismfor additional description and disclosure. This research material has been prepared by LPL Financial LLC.)}

• Our hearts are with all of the impacted communities in California that have been devastated by the recent wildfires. Americans everywhere are reaching out a hand of help and reassurance through charitable and humanitarian efforts. We've compiled a few resources for you to check out:
  
  

  The California Fire Foundationis working with local fire agencies and community organizations to support residents impacted by the blazes. 
  
  The American Red Cross is working alongside its partners to provide shelter, food, emotional support and health services. 
  
  The Salvation Army Southern California Division is working with government and nongovernment agencies to provide food, personal necessities and shelter to survivors and first responders.

  CRF has made a donation to the California Fire Foundation, with a matching donation anticipated from LPL Financial. We invite you to join us in supporting the recovery efforts and extend our heartfelt wishes for a swift and complete recovery to all affected areas. Our thoughts are with those directly affected by this disaster and with those who have family and loved ones impacted.

• The Recovery Rebate Credit (RRC) refers to a tax credit related to the economic impact payments (stimulus checks) that were provided to eligible taxpayers in previous years, primarily during the COVID-19 pandemic. In 2020 and 2021, the federal government issued direct payments to individuals and families to help offset economic difficulties.
  
  

  In December 2024, The IRS announced plans to issue automatic payments to eligible individuals who did not claim the RRC on their 2021 tax returns. No action is required from these taxpayers. The IRS will automatically deposit the payments into bank accounts or send them via paper checks by late January 2025.
  
  If you did not receive the full amount of stimulus payments you were eligible for, you could claim the Recovery Rebate Credit when filing your 2024 tax return. If you believe you may be eligible, consider consulting IRS guidelines or a tax professional for specific eligibility requirements and how to claim the credit on your tax return.
  
  

• Happy New Year!  Thank you for being an essential part of our journey. Your unwavering support was a key factor in our success in 2024, and we sincerely value your continued trust. As we step into 2025, we are excited to work alongside you to help you achieve your goals and aspirations. The entire CRF team wishes you a happy, healthy, and prosperous new year!

Tips for Good Recordkeeping

When you file your tax return, the first step is to prepare your records. Good recordkeeping throughout the year can make filing your taxes easier. 

Here are some recordkeeping tips:

• Identify all sources of income.
• Keep track of expenses.
• Add tax records to your files as you receive them to make filing easier. 
• Organize support items that you may need to clarify your tax return. 

^{This information is not a substitute for individualized tax advice. Please discuss your specific tax issues with a qualified tax professional.}

^{Tip adapted from irs.gov}

How to Verify Your Identity When Calling the IRS

When calling the IRS, you can expect them to verify your identity before delving into personal information. Here’s what you’ll need to verify your identity:

• Social Security number
• Birthdate
• An Individual Taxpayer Identification Number if you have one instead of your SSN
• Your filing status
• Your prior tax return. You may need information from your prior year’s return to answer certain questions.
• A copy of the tax return you’re calling about
• Any letters or notices you’ve received from the IRS

Important note: the IRS will only ask for this in documents or online. Never offer this info to someone who calls you and says they are from the IRS.

Having all this information handy before you call the IRS will make the process faster because IRS phone operators will only speak with the taxpayer or a legally designated representative.

^{This information is not a substitute for individualized tax advice. Please discuss your specific tax issues with a qualified tax professional.}

^{Tip adapted from irs.gov}

Throughout Friday, Hanna asks her mother the same four-word question. On each occasion, her mother gives her a different answer. What is the question?

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Last Month's Riddle:I am only one syllable long and too heavy for one person to lift, but if you reverse me, I am not. What am I? 

Answer: Ton