Welcome to the Winter Pomona Newsletter
“The first rule of compounding is to never interrupt it unnecessarily. The second rule is to remember the first rule.”
- Charlie Munger
Quick Takeaways:
- U.S. markets posted strong returns in 2025, with the Russell 3000 up 17.1%, the S&P500 up nearly 18%and reaching 46all-time highs, and U.S. bonds returning 7.3%.
- Market volatility was elevated, as the S&P 500 experienced a drawdown exceeding 20%,including a 6%single-day decline tied to tariff announcements, followed by a recovery that erased losses in 54 days.
- International equities outperformed, with developed and emerging market stocks each gaining more than 30% during the year.
- Monetary policy turned more accommodative, as the Federal Reserve implemented three rate cuts and most global central banks also eased policies.
- Economic conditions remained stable, with growth holding up despite a softening labor market, inflation continuing to ease from prior levels, and credit spreads remaining historically tight heading into 2026.
- The Atlanta Fed’s latest GDP forecast projects a 5.4% Q4 GDP expansion, driven largely by a narrowing trade deficit.
As always, please let me know if you have any questions or would just like to chat. My cell is (509) 643-6028 or schedule a virtual/in-person meeting HERE if that is preferable.
2026 Tax Notes & Key Numbers
Key Numbers
- Top Federal tax bracket: The 37% bracket begins at $786,700 for married filing jointly and $640,600 for single filers.
- IRA contributions: $7,500 annual limit for Traditional or Roth IRAs, with an additional $1,100 catch-up for those age 50+. Backdoor Roth strategies remain a great planning tool for higher earners.
- 401(k) contributions: $24,500 annual salary deferral limit.
- 401(k) catch-up contributions: $8,000 for ages 50+, increasing to $11,250 for those ages 60–63
Tax Documents from Charles Schwab
- Charles Schwab issues Forms 1099 in multiple batches, typically between January 15 and late February.
- If you have a taxable Schwab account (individual, joint, trust, or entity), I recommend waiting until March 1 to file your tax return. This helps reduce the risk of receiving a corrected 1099 later, which could require filing an amended return.
Markets Recap: Q4 2025
If you relied solely on headlines, you might not have expected the returns investors experienced in 2025. Despite persistent volatility and elevated uncertainty, all three sleeves of a diversified portfolio—stocks, bonds, and alternatives—delivered strong results.
Stocks: Equity markets performed well across the board, with international stocks standing out in particular, gaining in the mid-30% range. A meaningful contributor to those returns was the U.S. dollar, which declined by nearly 10% over the year, boosting returns for U.S.-based investors holding international assets.
Bonds: As inflation continued to soften and the Federal Reserve began cutting interest rates, U.S. bonds posted returns just over 7%. Looking ahead, the Fed is expected to cut rates an additional two to three times next year. While this would likely push short-term yields lower, how the longer end of the yield curve responds remains uncertain and will depend on growth and inflation expectations.
Alternatives: Although alternatives are primarily included for diversification, they also carry a positive long-term return expectation—and 2025 was a strong year. Reinsurance strategies gained over 10%, trend-following and managed futures returned approximately 14%, and commodities finished the year up around 6%.
Looking Ahead in 2026
I get this question often: what should we expect looking forward? One thing is certain—there will be no shortage of headlines. Many will be sensationalized, designed to grab attention rather than provide context or clarity.
The chart below shows the S&P 500’s journey through 2025, alongside many of the “important” news events and economic announcements that dominated the year. Despite the constant stream of headlines and periods of volatility, it ended up being a strong year overall. By most measures, entering 2025, the market was already fairly richly valued (with international stocks being a notable exception). Even so, as the year unfolded, it once again proved how difficult it is to consistently predict short-term market direction.
When we zoom out and look at the longer term, the picture becomes much clearer. Markets tend to move up and to the right over time. In the second chart below, the yellow line represents the growth of a single dollar invested over decades. The blue bars—showing annual returns—can look chaotic and uncomfortable year to year. But viewed through the lens of long-term compounding, those gut-wrenching declines become far less intimidating.
Will there be a decline in 2026? Almost certainly. The table below highlights this reality. The “DD” column shows the maximum intra-year drawdown—how much the market fell at some point during the year—while the “TR” column shows the full-year total return. While drawdowns are common and often uncomfortable, the end-of-year results are frequently far more reassuring than the headlines would suggest.
New Team Member
I shared this update briefly in my Christmas digital mailing, but I also wanted to formally welcome a new team member to Pomona: Cassie Cornwell.
Pomona continues to grow, and my focus remains on sustainable, thoughtful growth—expanding in a way that never detracts from the level of service and care you expect and deserve. Cassie has joined Pomona as a Senior Client Service Consultant, helping ensure we continue to deliver a high-touch client experience as the firm grows.
Cassie and I previously worked together at a larger RIA in the Tri-Cities, where she spent over 10 years supporting clients and working closely with many of the firm’s higher-profile relationships. She played a lead role in managing client service across the firm and brings a deep level of experience, professionalism, and care to Pomona.
I’m confident Cassie will be a great addition and a valuable resource for you going forward. She can be reached at service@pomonawm.com.
If you have questions about your portfolio, financial plan, or recent headlines, feel free to reach out. You can schedule a meeting with us HERE.
Kevin Floyd, CFA,CFP®, AIF®
Pomona Wealth Management
