If there ever was a quarter to illustrate the wisdom of a well-diversified portfolio strategy, the start to 2025
is a textbook case: the quarter’s biggest ‘winners’ were the biggest ‘losers’ of 2024’s final months.

Through March 31st (two days before this week’s tariff announcement), the overall U.S. stock market
declined 4.5% with the S&P 500 down over 4%. During this same time, over 60% of your portfolio’s
equity (stock market) holdings produced gains as foreign equities and U.S. large-cap value holdings both
made money. Some of this was a reversal of some post-election over-reaction, but these asset classes also
benefited from declines in interest rates and the U.S. dollar. This also produced strong bond market
returns; intermediate-term bond holdings (SCHR and VGIT) are now up over 4% thus far in 2025.

This quarter’s declines occurred in U.S. large-cap growth and small cap stocks, the same asset classes that
generated two-thirds of 2024’s total investment gains. Throughout last year, we used these gains to fund
any needed withdrawals and to rebalance your portfolio with increased holdings in foreign equities, U.S.
large-cap value stocks, and bonds – the asset classes which have helped the most in so far in 2025. As you
know, your fixed income assets always stand ready to fund withdrawal needs during turbulent times.

Volatility also increased sharply, which was unsurprising amid uncertainties around new Administration
policies. We know that diversification is the best defense against volatility. However, it’s important to
remember that the political ‘volume’ is not the economy, and the economy is not the financial markets.
What we look for are signs of consumer behavior changes. If consumers hesitate or cut back in their
spending, corporate profits will suffer and recession risks will rise. This is typically bad news for the stock
market and good news for longer-term government bonds.

The talk of tariffs dominates the news. For now, it has replaced expectations for future interest rate cuts
as the primary driver of financial market results. While tariffs do raise (some) prices, they ultimately slow
economic activity by both producers and consumers. They also create investment opportunities that may
not otherwise occur. Specifically, if a ‘trade war’ fought with tariffs causes overseas leaders to take actions
which increase investment in their infrastructure, defense capabilities and/or energy independence, this
would likely increase that country’s corporate profits and benefit their stock market.

Should this unfold, we would look to increase overseas holdings to approach 30% of the total equities in
unconstrained client portfolios. We will also be watching for further re-balancing opportunities.

We wish you a healthy, enjoyable spring and thank you for the continuing opportunity to work together.