February 14, 2025
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To the Clients of Evergreen Wealth Management,
As we step into 2025, the team at Evergreen Wealth Management reflects on the privilege of guiding the financial futures of over 300 families and individuals. With more than $209 million in assets under management, we are deeply grateful for your continued trust and the meaningful relationships we’ve built—many of which span decades. Supporting your financial goals and retirement dreams is the heart of what we do, and it’s always top of mind for us.
At Evergreen Wealth Management, we strive to provide you with a “high return on time.” We understand that your time is incredibly valuable, and our mission is to alleviate the burdens of financial management, so you can focus on what matters most to you. As part of our annual reflection, we’ve put together a summary of our business, a look back at the market in 2024, and some thoughts on what the year ahead may hold. We aim to keep this high-level for your benefit, but if you have any questions or would like more detail, please don’t hesitate to reach out!
2024 Market Thoughts
What a remarkable year 2024 turned out to be for the markets! Building on the strong performance of 2023, the equity markets surged higher. Here’s a snapshot of how key indices performed in 2024:
- All Country World Index (ACWI): +17.45%
- Dow Jones Industrial (^DJITR): +14.35%
- S&P 500 (SPY): +25.02%
*(1) Data above provided by Goldman Sachs Custody Solutions
While 2024 was a great year, the long term is what we aim our focus. Since the start of the decade (January 1, 2020), the ACWI has grown by 61.8%, which equates to an annualized return of 10.1%. From the lows of the COVID-19 recession, we’ve seen a staggering increase of 131.84%, or nearly 20% annually. This highlights the importance of staying focused on the long-term and avoiding knee-jerk reactions driven by short-term emotions.
But why such strong returns?
We expect the long-run return of the broad stock market to be in line with its earnings growth rate since we are essentially investing in profits. Periods of rapidly increasing stock prices should occur when there is a rapid increase in those profit growth rates. Sometimes stock prices jump when the earnings and growth rate don’t change much, but investors perceive the value of those existing earnings as greater than before.
We’ve had a bit of both in 2024 to help move markets higher. Profits have rallied, especially in technology companies. And investors keep proving they are willing to pay more for every dollar of profits than they did in previous years (buoyed by excess liquidity in system). Here is a snapshot of the recent data:
- 1-Year Profit Growth (EPS Growth of S&P 500): 26.59% profit growth vs. 23.31% price return in the S&P 500
- 5-Year Profit Growth: 74.66% vs. 82.05% price return in the S&P 500
- 10-Year Profit Growth: 181% profit growth vs. 185.10% price return in the S&P 500
*(2) Data above provided by Ycharts
The data shows that profit growth has been the key driver of returns over the past 1, 5, and 10 years. This is a good indicator, as valuation bubbles often occur when there’s a significant long-term disconnect between price and profit growth. As of now, the market’s returns appear well-supported by solid fundamentals.
That said, we must also be mindful of valuations. The market’s price-to-earnings (P/E) ratio is now higher than it was in 2015. At the start of 2015, the P/E ratio was near 20, while today it’s closer to 24 (assuming Q4 profits come in as expected). This 20% premium means investors are paying more for each dollar of profit. This increase in valuations has partly been driven by both excess liquidity (think government stimulus or artificially low interest rates) over the past decade and increased optimism about future earnings growth. If this ‘future’ excess earnings growth starts to get pressured, we could easily see some added volatility enter the system. Said another way, stocks are not cheap today and rely on strong earnings growth continuing for the foreseeable future. We are more susceptible to a larger decline at these prices than in some years past. This does not mean a decline is inevitable but the sensitivity of markets to earnings changing (or any narrative thereof) will be much higher in 2025.
As I’ve mentioned before, we believe that this excess liquidity will eventually be removed from the system. The process has already begun, partly through high inflation. We still see the risk of inflation as a potential threat, as the system works through this excess liquidity. Another concern is the possibility of a recession, which could clear out this liquidity via the banks and bring standard valuations down considerably. We continue to watch these risks closely, as the government, the Federal Reserve, and the Treasury navigate the challenge of normalizing interest rates, ensuring bank liquidity, and bringing inflation down to the target 2%.
The term used to describe this balancing act is a “soft landing.” While I remain skeptical about the possibility of a true soft landing, I fully acknowledge that the macroeconomic tools at their disposal are powerful and can push pain down the road for some time. Therefore, our approach remains focused on managing risks, staying balanced in our investment strategy, and being ready to seize opportunities when they arise. It’s likely that at some point, the Fed and Government will exhaust their liquidity options, and we will experience a market correction. For now, however, the economy (and subsequent inputs to profit growth) remain strong, helping to support solid profit growth.
Thoughts on 2025
Looking ahead, the bar for market expectations has been set higher than usual. In other words, valuations seem a bit stretched as mentioned above. Some key factors we’re closely monitoring for 2025 that could fundamentally change market dynamics include:
Potential Market Catalysts for 2025:
- Rate Cuts: A potential 50 basis point reduction vs. no cuts and a lack of additional liquidity
- AI Growth: Continued monetization or higher-than-expected AI spending vs. AI not living up to expectations and potential cutbacks in capital expenditures
- Geopolitical Developments: Positive resolutions in trade agreements and international relations vs. continued nationalistic policies and elevated trade tensions
We expect these issues to dominate headlines in 2025, with real risks on the horizon. Like 2024, we don’t know exactly how these developments will unfold. But just as we successfully navigated the risks in 2024, we remain committed to a long-term, disciplined approach to investing, based on logic and historical data.
With stretched valuations and new risks emerging in 2025, we will continue to maintain a well-balanced portfolio, trim positions that have outperformed, and stay aligned with our risk targets. While we can’t eliminate risk, we can manage it in real-time. Should we see any significant declines, we’re prepared to take advantage of opportunities, just as we’ve done in the past.
Why We Are Different – Annual Refresher On Our Approach
The Evergreen Model
One thing we often hear from clients is that Evergreen Wealth Management is different—and for good reason. Most of our growth has come from referrals and direct connections, which is a testament to the trust and value we’ve built with our clients over time. What truly sets us apart is our dynamic, ongoing planning and money management approach. We don’t just set up a plan and forget about it; we continuously adjust and refine strategies to ensure we’re meeting your unique financial needs. This isn’t a one-time conversation—it’s a partnership that evolves over time.
In fact, we believe that the most valuable service we offer is managing your time, not just your investments. We handle the research, analysis, planning, and execution behind the scenes so that you can focus on what truly matters to you. This is our version of providing a high return on time.
Another key differentiator is our in-house money management team. Many advisory firms outsource this function, but we prefer to keep it in-house to ensure we have complete control over our investment decisions. Our commitment is to build a legacy, not just a business for the next five years. By focusing on “People First,” we believe that everything else will follow.
The Secret Sauce: Do What You Love
A decade ago, we made a conscious decision to build our firm around what we love to do—serving clients and managing money. This means we’re often willing to turn down opportunities that don’t align with our values or long-term vision. By focusing on what truly excites us, we can offer our clients the highest level of energy and commitment.
As Steve Jobs famously said, “Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.” This philosophy guides us every day.
The Commonsense Investor – Our Investment Edge
Warren Buffett’s quote, “Price is what you pay, value is what you get,” is central to our investment philosophy. Investing is about buying into businesses that generate long-term cash flows, and our goal is to pay a fair price for those future cash flows. The less we pay, the greater our long-term return.
While the market generally aligns price with value, emotionally driven selloffs can create rare opportunities to buy strong businesses at discounted prices. The 2022 market decline was one of those moments. While 2022 was challenging for the market, it gave us the opportunity to buy high-quality businesses at a discount. Since then, the All-Country World Index (ACWI) has gained more than 51%, reaching new all-time highs. Staying disciplined and focused on the long term gives us a significant edge!
As Benjamin Graham said, “In the short run, the market is a voting machine. In the long run, it is a weighing machine.”
Closing Thoughts
2024 proved to be a tremendous year. Another reminder that markets go through cycles of ups and downs, and we remain steadfast in our belief that sticking to a long-term, disciplined strategy is the key to success. We do not make investment decisions based on short-term emotional reactions; instead, we stick to a sound, long-term plan that is aligned with your financial goals.
Looking ahead to 2025, we remain committed to focusing on investments with strong, sustainable earnings power and the potential for long-term compounding success. We will continue to make decisions based on logic and research, not emotional impulses. As always, we are here to help guide you through any uncertainty and ensure that your portfolio stays aligned with your objectives.
Finally, thank you. Our success is a direct result of the incredible clients we have the privilege to serve. You are the reason we get up every day to do what we love, and we are truly honored to be part of your financial journey. We look forward to another year of partnership, growth, and success in 2025 and beyond!
With sincere gratitude,
Evergreen Wealth Management
Disclosures
(1) Data provided by custodian Goldman Folio Institutional.
(2) Data provided by Y-Charts.
Index results such as the All-Country World Index (ACWI), Dow Jones Industrial & S&P 500 do not reflect management fees and expenses, and you cannot typically invest in an index. Evergreen Wealth Management, LLC is a registered investment adviser. The information presented is for educational purposes only and does not constitute an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future results.
The opinions expressed herein are those of the firm and are subject to change without notice.