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One of the great ironies of investing is that even as the stock market notches record highs as it has this year, investors know the good times inevitably cannot last.
If 2025 overpromised on uncertainty stemming from a new presidential administration, it also underdelivered on volatility. Aside from a steep — albeit short-lived — stock selloff early in the year, investors who stayed disciplined have been rewarded for their patience.
Heading into 2026, some shifting dynamics await investors. Federal Reserve policymakers cut its key interest rate for a second straight meeting in October, while cautioning that future rate cuts aren’t guaranteed. Meanwhile, tech industry spending on artificial intelligence has boosted the economy and stock market, while stoking concerns of a bubble that could burst. Finally, investors can take advantage of a more favorable tax landscape and a wider array of investment opportunities.
While the issues du jour may feel unique — and, to a degree, they are — navigating the current investing landscape doesn’t require an equally unique approach, says Joe Montgomery, managing director of investments at The Optimal Service Group of Wells Fargo Advisors in Williamsburg. Rather, you should make decisions based only on changes to the fundamentals core to your wealth management strategy.
“There’s no magic to it,” says Montgomery, whom Forbes ranks as the state’s top wealth adviser. “It’s a discipline that is hard to do because greed and fear will undermine your future more than any market correction will.”
While some clients are “really concerned” about a market pullback, others worry they’re missing out on opportunities for higher returns given the exuberance surrounding AI stocks, notes Donte Smith, vice president and financial adviser with Merrill Lynch Wealth Management in Richmond. A balanced approach to investing is always important, however, especially when market dynamics create temptations to deviate from your strategy.
“I always tell my clients, ‘My biggest job is to make sure you stay invested,’” Smith says, adding that’s why it’s important to build an investment portfolio that offers peace of mind, no matter what’s happening.
What type of investment strategy is prudent, given shifting dynamics in financial markets? Four Virginia-based wealth management professionals weigh in.
‘Huge’ change in fixed income
One big difference for investors now versus a year ago is in the fixed income market and the outlook for interest rates, says Lawrence “Larry” Bernert III, senior managing director at Clearstead Advisory Solutions in Norfolk. “That’s a huge change.”
The federal funds rate, which topped 5% as recently as September 2024, is projected to fall to 3.6% by 2026, according to the median of year-end forecasts from central bankers.
That’s a bit higher than the same estimate one year ago, but warrants thinking more strategically about the duration of your fixed income assets, including U.S. Treasury bonds and certificates of deposit (CDs). It’s important to lock in relatively higher interest rates now if you haven’t already, experts say, given the likelihood of lower rates to come.
Bernert has been focusing on intermediate- term fixed income assets with maturities ranging from six to eight years. “That’s long enough,” he says. “But the big question is: Is it short enough?”
Because Fed policymakers have signaled interest rates could stay higher for longer and there will be a more gradual rate-cutting cycle, you may want to consider even shorter-duration assets, advises Nirali Raval Trovato, senior vice president of Towne Wealth Management and a financial adviser at Raymond James Financial Services in Virginia Beach. She’s been favoring high-quality bonds with durations ranging from two to seven years.
“That’s still the best place to be,” Trovato says. “You’re getting compensated for taking the duration risk, but you’re not tied up for 30 years.”
Potential AI bubble
The dominance of AI stocks has been so pronounced this year that many people are seeing comparisons to the dot-com bubble that burst in 2000, leading to the second worst bear market in modern history. While Montgomery and Bernert see some bubblelike aspects today, Trovato doesn’t think market dynamics are as “dramatic” as they were in that era.
However, these Virginia advisers emphasize it’s important to avoid a herd mentality of piling onto the market’s outperformers. The lesson to be learned from history, they say, is the value of staying the course and finding opportunities that align with your investment strategy.
In fact, the temptation to chase market winners could mean you miss out on stocks that could lead the next stage of the rally, Smith says. Corporate earnings have illustrated that, by and large, companies continue to see strong profit cycles that could be further buoyed by AI-driven efficiencies and more accommodating financial conditions, he adds.
“Lots of other companies are going to benefit, so there will be broader market participation,” Smith says. If there’s a big rotation within the U.S. stock market, as he anticipates, then investors who are well diversified will benefit from gains in sectors like utilities, industrials and financials.
There’s no reason to make drastic changes to your portfolio, as large-cap stocks are likely to remain resilient, Trovato notes. But investing in smaller companies has become more attractive, thanks to lower interest rates. “We’re in a better place for mid- and small-caps than a year ago.”
Finally, investors should consider valuations, which is why Bernert favors an overweight allocation to non-U.S. equities, including emerging markets, which are relatively inexpensive. This type of strategy will benefit investors if there’s a pullback or correction in the U.S. stock market, he says. “It’s more important than ever to be diversified.”
Revisiting tax strategies
In July, investors received some welcome certainty on the tax front, as many provisions of the 2017 tax cuts were made permanent with the One Big Beautiful Bill Act. Since then, Montgomery and his team have been looking at various tax considerations that benefit specific clients.
These tax provisions can be significant, though they vary widely based on your circumstances. American taxpayers across the board will see reduced individual income tax rates, while high net-worth individuals stand to benefit from higher estate tax exemptions, bigger state and local tax (SALT) deductions, and changes in the tax landscape that may make family offices more attractive.
By extending investor-friendly tax provisions set to expire this year, the bill essentially allowed many investors to “hit the snooze button” on major changes to their tax strategy, Bernert says. But there are new opportunities investors should be aware of, Trovato adds.
For instance, tax cuts could make Roth conversions —transferring a traditional IRA to a Roth IRA — more attractive, while the eligible expenses for 529 plans have been expanded and could make investing money in these accounts more appealing, Trovato says. “As with any new legislation, it creates current or future planning opportunities.”
Finally, private investments will transform the investing landscape in 2026 and beyond after President Donald Trump signed an executive order in August allowing these assets to be added to retirement plans.
“It’s as significant as anything I’ve ever seen,” says Montgomery, who has nearly
50 years of experience as a wealth adviser. “The tool kit we have available today is extraordinary.”
Democratizing access to an asset class once off-limits for most investors will be an important theme to watch, Bernert says, though it also makes him a bit nervous: “Investors should be really sure they have access to really good funds.”
Without the guidance of an adviser to understand how private assets will add benefits — and risks — to your investment strategy, investors should consider putting money into private investments with some caution, Smith says.
“All of these things are just like the meals that you eat,” he notes. “Dessert is great, but it’s dessert in moderation.”
JOE HINES
