We are now in the final quarter of a busy 2025, with the markets continuing their upward climb. In fact, October 12th marks the three-year anniversary of the start of the bull market that we continue to enjoy. Smaller companies, as represented by the Russell 2000, led the way in Q3 with an 11.29% quarterly return, while the tech-heavy NASDAQ 100 returned a respectable 9.68%, and the large cap S&P 500 returned 8.11%. International stocks, as represented by the MSCI ACWI ex USA index, continued to be positive at 6.8% over the same time, and bonds, as represented by the Bloomberg US Agg eked out almost a 3% return. Despite record valuations, most asset classes continued their gains, with the Dow Jones, S&P 500, and NASDAQ reaching all-time highs last quarter (and continuing to test new heights in Q4). While tariffs and geopolitical uncertainty remain as headwinds, the beginning of rate cuts in September 2025 and massive investments in AI infrastructure continue to fuel this market. The government shutdown started at 12:01 AM on October 1st, and as of the time of this writing, looks unlikely to be resolved soon. The tangible effect of this on investors is a lack of government data (like jobs reports), while for Federal employees, the concerns unfortunately hit closer to home with concerns of furloughs or even mass layoffs.
Source: Morningstar, as of 9/30/2025. Returns Over One Year are Annualized
The above chart shows the returns of the major indices across various time periods. The stunning performance of the NASDAQ 100, averaging near 20% a year since 2010, clearly illustrates the power of equities across a large swath of many investors’ careers. To put this in perspective, a 20% annual return doubles your initial investment every 3.6 years. That is far above expectations, and it is important to remember that average returns include some volatile periods where there were larger short-term drawdowns in value. While companies have indeed become more profitable, this has not kept pace with multiples, leading to the high valuations we currently see in equities. Fixed income, by contrast, looks less richly priced. Per J.P. Morgan Asset Management’s most recent Guide to the Markets, USD denominated bonds across the credit spectrum yield approximately 200 bps more than their 15-year averages. In addition, the benchmark 10-year Treasury bond still offers a solid real yield at 1.05%. Therefore, we find current fixed income yields attractive relative to recent history, offering positive real returns.
As we are approaching the end of the year, and while the market is at all-time highs, we wanted to point out four areas of focus that can help you finish the year strongly.
- Be cognizant of your tax situation
It is getting increasingly difficult to find losses in portfolios to offset gains. This is particularly relevant at a time when stocks see large gains because this makes rebalancing more costly due to taxes. Compton Wealth utilizes a judicious approach when rebalancing, aiming to generate gains only when necessary to bring the portfolio back on target. Regardless, capital gains are a natural consequence of rebalancing.
- On the tax side, communication is key. At our review meetings, we will be discussing the following items that could mitigate your tax bill.
Sell “duds” at a loss. Perhaps you have an investment in a self-managed account or with another advisor that just did not pan out. That’s ok- you can’t win them all. If the position is at a loss and you sell it, we can take the loss into account when rebalancing your account. Those losses give us more bandwidth for rebalancing without triggering an unusually large tax bill, even with large, embedded gains across the accounts we manage.
Reduce your income. This sounds odd, but what we mean by that is utilize the tax code to reduce your taxable income. This will indirectly help you with capital gains taxes since those rates are tied to your income. If you are experiencing a lower than usual income, whether due to depreciation flow from real estate investments, one-off contributions to qualified accounts, or charitable giving, just to name a few pertinent examples, it could be better to realize gains now rather than later when your income goes up.
- Prefunding Upcoming Major Expenses
- If you have a major expense coming up, it could make sense to address that now by putting the amount it will cost in a less volatile investment, like Treasury Bills or money market funds. As an example, if you plan to purchase a home two years from now, you could take the amount of the expected down payment from your investments and lock it in a two-year Treasury.
- New Retirement Plan Contribution Limits
- For participants aged 60-63, this is the first year where you can make a “super catch-up” contribution. If you are in this age group, you can contribute an additional $11,250 into your 401(k), on top of the base limit ($23,500) and the “regular” age 50+ catch-up ($7,500). This means that in 2025, you can contribute a whopping total of $42,250 into your 401(k).
This is also the only year that these contributions can all be made pre-tax. Starting in 2026, if you are 50 or older and make more than $145,000, both your catch-up and super catch-up must go into a Roth account.
- Use Qualified Charitable Distributions (QCDs)
- A QCD is a direct transfer from your IRA to an eligible nonprofit that is allowed for people over age 70 ½. Note that this cannot come from your 401(k) or other employer sponsored retirement plan.
A major case for this is if you have Required Minimum Distributions (RMDs) but do not need the income. Rather than taking your RMD as income (and paying taxes on it), you can make a QCD to a charitable organization that you care about.
The limit to donate is up to $108,000 in 2025 and is indexed to inflation for subsequent years.
We look forward to discussing these and other topics as we meet with you so that you can finish this busy year strongly.
IMPORTANT DISCLOSURE INFORMATION
Compton Wealth Advisory Group, LLC (“Compton Wealth”) is an SEC registered investment adviser in Virginia Beach, VA and not affiliated with your bank or brokerage custodian. Registration of an investment advisor does not imply any level of skill or training. The information presented is limited to general information pertaining to Compton Wealth’s services, views, outlooks, and opinions and is for information purposes only. There is no guarantee that the views and opinions expressed in any Compton Wealth content will come to pass. The information presented is subject to change without notice and should not be considered an offer to sell or a solicitation of an offer to buy any security.
Certain information presented may contain a discussion of material economic conditions and/or events that may affect future results. All information is deemed reliable as of the date presented but is not guaranteed and is subject to change.
Certain information is based on or derived from independent third-party sources that, in certain cases, may or may not have been updated through the date of this information. While such information is believed to be reliable for the purposes used herein, Compton Wealth has not independently verified the assumptions on which such information is based nor assumes any responsibility for the accuracy or completeness of such information. Such information is subject to change without notice to you.
References to indices or other financial benchmarks are provided for illustration purposes only. Indices are unmanaged, statistical composites and an individual cannot directly invest in an index. Any returns portrayed do not reflect the deduction of underlying investment expenses and third-party fees to purchase the securities they represent. Data from the indices (i.e., the S&P 500) are supplied by third party suppliers. Compton Wealth does not attest to the accuracy or reliability of these numbers nor the methods of calculation from which they are derived. The indices performance data reported represents past performance and does not guarantee future results. Your current account performance may be lower or higher than return data quoted within.
Past performance does not guarantee future results. Certain information set forth herein may contain “forward-looking information”. These statements are not guarantees of future performance and undue reliance should not be placed on them. Different types of investments involve varying degrees of risk. Therefore, there can be no assurance that the future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Compton Wealth, or any non-investment related content), will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Compton Wealth is neither a law firm, nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from Compton Wealth. Please remember that it remains your responsibility to advise Compton Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request at www.comptonwealth.com/disclosures. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Compton Wealth account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Compton Wealth accounts; and (3) a description of each comparative benchmark/index is available upon request.