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A Bond ETF in Retirement Planning: A Second Chance for Smarter Income Strategies

After a painful stretch for fixed income investors, bond ETFs are back in the spotlight—but not in the way many retirees expect. For financial advisors and DIY investors using tools like those at ETFMathGuy, the key question isn’t whether a bond ETF is “safe” again. It’s how to use them intelligently within a tax-efficient retirement income strategy while addressing their ongoing challenges.

Total return of a broad bond ETF since 2021 versus a mixed and equity benchmark
Total return of a broad bond ETF since 2021 versus a retirement fund and equity benchmark

What Changed for Bond ETFs?

Recent coverage from the Wall Street Journal paints a clear picture. In the recent article,
“Bonds Slammed Your Retirement Fund. Time for a Second Chance?“, investors are reminded that rising rates likely decrease bond prices, hurting even conservative portfolios. Meanwhile, another WSJ article, “Money Managers Are Asking Clients to Give the Bond Market Another Chance” highlights a reversal: higher yields now mean bonds can once again generate meaningful income.

However, investors should remain cautious. A third recent WSJ article entitled “Don’t Fall for Bond Funds That Say They’re Beating the Market” explains that many “outperforming” funds are simply taking hidden risks—duration or credit bets that may not hold up.

Why A Bond ETF Matters for Retirement Income

ETF investors should not view a bond ETF as a static “safe” allocation. Instead, they are dynamic tools that influence:

  • Sequence-of-returns risk
  • Tax efficiency across account types (taxable vs IRA/Roth)
  • Income stability vs growth tradeoffs

Higher yields improve forward-looking returns, but they also increase dispersion between strategies. A long-term Treasury ETF behaves very differently from a short-term corporate bond ETF—especially during rate shifts.

Smarter Ways to Use a Bond ETF

Rather than relying on broad, passive bond exposure alone, consider a more intentional approach:

  • Duration targeting: Use short- and intermediate-term bond ETFs to reduce volatility while preserving yield
  • Income layering: Combine Treasuries, corporates, and TIPS for diversified income streams
  • Tax-aware placement: Hold taxable bond ETFs in tax-deferred accounts when possible
  • Withdrawal alignment: Match bond ETF cash flows to planned retirement withdrawals

These decisions can materially improve after-tax retirement income—something we designed our ETFMathGuy optimization tool to quantify.

The Bottom Line

Bond ETFs are indeed getting a “second chance,” but understanding how they work really matters. Investors who don’t understand their risks may repeat past mistakes. Those who integrate them thoughtfully—balancing yield, risk, and tax efficiency—can unlock their full potential in retirement portfolios.

In today’s rate environment, bond ETFs aren’t just about safety. They’re about accessing parts of the debt market in unique ways to meet your investment objectives.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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Removing some of the guesswork from tax-efficient retirement planning

Planning for retirement often turns into a high-stakes guessing game—especially when it comes to taxes. A recent Wall Street Journal article by Laura Saunders explains why predicting future tax rates is so difficult and why relying on guesses can lead to costly mistakes. The better approach is to focus on a tax-efficient retirement income strategy that emphasizes analytic models over guesswork.

Why Retirement Tax Planning Feels Like a Guessing Game

Future tax policy, income needs, and even lifespan are uncertain. Saunders highlights a common pitfall: over-reliance on tax-deferred accounts such as traditional IRAs and 401(k)s. While these accounts provide upfront tax savings, they can create large required minimum distributions (RMDs) later in retirement. These involuntary distributions can push retirees into higher income brackets, undermining a tax-efficient retirement income plan.

This is why diversification across account types —taxable, tax-deferred, and Roth accounts—is essential for tax-efficient retirement income. With multiple income sources, retirees can better manage their taxable income each year. Then, they can meet their after-tax income needs efficiently.

The Role of Roth Conversions in Tax-Efficient Retirement Income

Strategic Roth conversions are a powerful tool for achieving tax-efficient retirement income. Converting assets during lower-income years can reduce future RMDs and smooth lifetime taxes. However, timing is critical. Converting too much in a single year can increase your marginal tax rate and reduce overall tax efficiency.

Research by DiLellio and McQuarrie reinforces this point. As we discussed in a previous post, our work shows that Roth conversion decisions require a lifetime perspective. Instead of relying on simple rules of thumb, investors should evaluate how conversions affect total lifetime taxes and long-term retirement income outcomes.

Move Beyond Guesswork with Better Tools

Planning isn’t about finding a perfect prediction—it’s about making informed, adaptable decisions that lead to tax-efficient retirement income. The ETFMathGuy Optimal Retirement Income Calculator (https://apps.etfmathguy.com/calc) is designed to solve the real challenges investors face. It helps quantify withdrawals across taxable, tax-deferred, and Roth accounts; optimize Roth conversion timing; minimize lifetime taxes; and model key variables such as RMDs, Social Security, and tax brackets.

Instead of guessing, you can build a strategy for truly tax-efficient retirement income—grounded in data, not speculation.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

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Stock Market Bubbles: Why Diversification Still Wins

Stock market bubbles continue to dominate headlines, particularly in fast-moving sectors like artificial intelligence and semiconductors. A recent WSJ article, America Is Great at Creating Stock Market Bubbles—and Shrugging Them Off, highlights this. It discusses how these bubbles can inflate and burst rapidly—sometimes within months—yet the broader market often remains resilient.

Stock Market Bubbles: Why Diversification Still Wins with ETFs
Diversification in the S&P 500 index can help when a sector bubble bursts, like in Artificial Intelligence and Semiconductors

Diversification and the S&P 500

The key reason is diversification. Even as specific themes collapse, like memory chips or AI stocks, the S&P 500 has remained near record highs. This pattern reflects a broader trend: localized stock market bubbles rarely derail a diversified index. Over the past 12 months, the S&P 500 has delivered. This broad-based index had total returns of roughly 19%, with annualized volatility of about 13%. These figures highlight a balance between growth and risk, even amid periodic drawdowns.

ETFs to access the S&P 500

Investors often access the index through ETFs. S&P 500 ETFs include the iShares Core S&P 500 ETF (IVV), Vanguard S&P 500 ETF (VOO), and SPDR S&P 500 ETF Trust (SPY). These funds closely track the S&P 500, delivering nearly identical returns and volatility due to their passive structure. See BlackRock IVV fund page, Vanguard VOO fund page, and State Street SPY fund page for more information.

Sector ETFs tell a more nuanced story. Technology (XLK) has posted higher returns but with greater volatility. Meanwhile, defensive sectors like utilities (XLU) and consumer staples (XLP) have delivered similar volatility with more modest gains. Sectors such as financials (XLF) and industrials (XLI) have exhibited risk-return profiles similar to the overall index.

Recent research reinforces these trends. A July 2026 analysis from Morningstar Market Insights notes that concentration in mega-cap technology stocks has increased sector volatility, even as diversification helps stabilize overall portfolio risk. Similarly, insights from JPMorgan Asset Management highlight that earnings growth outside technology has helped offset sector-specific drawdowns.

Dealing with the inevitable stock market bubbles and ETFs

The takeaway is clear: stock market bubbles are inevitable, but their impact depends on portfolio construction. The S&P 500 remains a diversified index spanning 11 sectors and hundreds of companies. This diversification allows gains in some areas to offset losses in others, often resulting in lower volatility for similar long-term returns.

In today’s environment—where speculative cycles can form and collapse quickly—broad exposure through index ETFs remains one of the most effective ways to manage risk. Stock market bubbles may come and go, but diversification remains a durable strategy for long-term investors.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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How Retirement Income Needs Change Over Time: New Research and Practical Planning Tools

Understanding Retirement Income Needs is one of the most important—and often misunderstood—aspects of financial planning. Traditional models assume retirees spend the same amount each year, adjusted for inflation. However, recently published research in the Financial Planning Review by David Blanchett challenges this assumption and offers a more realistic framework for how spending evolves throughout retirement, building on and updating his previously impactful research on this topic.

Why Retirement Income Needs Aren’t Constant

Blanchett’s research shows that Retirement Income Needs typically decline over time in inflation-adjusted terms. Rather than following a flat spending pattern, retirees tend to spend more in early retirement and gradually reduce spending as they age.

This aligns with the well-known retirement phases:

  • Go-Go Years: Higher spending driven by travel, hobbies, and active lifestyles
  • Slow-Go Years: Moderate spending as activity levels begin to decline
  • No-Go Years: Lower discretionary spending, with potential increases in healthcare costs

This evolving pattern reflects both lifestyle changes and natural aging, making it critical for financial plans to adapt accordingly.

The “Smile” vs. “Smirk” in Changing Needs

Blanchett introduces two important concepts that reshape how we think about Retirement Income:

  • Retirement Spending Smile: Spending declines early, then increases later due to healthcare or long-term care expenses
  • Retirement Spending Smirk: A more gradual, consistent decline in spending throughout retirement

These models suggest that retirees may not need to maintain constant real income, and incorporating these patterns can potentially increase sustainable withdrawal rates or bequests.

The annual change in retirement income needs modeled as either a smile (average) or smirk (median). Source: Blanchett (2026)
Blanchett modeled the annual change in retirement income needs with either a smile (average) or smirk (median). Source: Blanchett (2026)

Applying Retirement Income Needs in Real Planning

We recently integrated these insights into the ETFMathGuy Retirement Calculator, helping users model more realistic Retirement Income Needs.

Two key inputs make this possible:

  • “Your Baseline Pattern of Annual After-Tax Retirement Income” allows users to reflect expected spending changes across different retirement phases as either a “No Change”, “Smile”, or “Smirk”.
  • “Smile or Smirk Annual Growth Rate Adjustment” helps model whether spending will grow or decline steadily and/or increase later in life based on either an arithmetic mean or median interpretation of the empirical data.

By incorporating these dynamic spending patterns, retirees can build more flexible strategies—often allowing for higher spending earlier in retirement without sacrificing long-term sustainability. Ultimately, Retirement Income Needs are not static—they evolve. Planning for that evolution can lead to better outcomes, greater confidence, and a more enjoyable retirement.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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After-Tax Returns and ETFs

Taxes are often the silent drag on after-tax returns—less visible than fees, but far more consequential over time. As Jason Zweig explains in a recent Wall Street Journal article, investors may have “won the battle” on fees, but are still “losing the war” against taxes. Federal taxes alone can consume more than one-third of an investor’s accumulated wealth over decades.

Maximizing after-tax returns for U.S. ETF investors remains a challenge
Maximizing after-tax returns for U.S. ETF investors remains a challenge

Long-term Impact of After-Tax Returns

The long-term impact is substantial. Historically, U.S. stocks returned about 10% annually before taxes, but only around 7% after taxes. Recent years have achieved even higher returns. That gap compounds dramatically, with taxes reducing returns annually. This reinforces a key principle: what matters is not gross return, but after-tax income and gains.

Passive investing—especially through index ETFs—has become a cornerstone of tax efficiency. Broad-market ETFs typically limit capital gains distributions due to their structure, allowing investors to defer taxes until they realize gains. According to Morningstar research, this tax deferral is one of the primary reasons index ETFs often outperform actively managed funds on an after-tax basis. Zweig similarly notes that diversified index ETFs can reduce annual tax burdens for passive investors.

Not all ETFs are tax-efficient

However, investors should not assume all ETFs are tax-efficient. Some high-yield or options-based funds generate significant short-term income, taxed at higher ordinary rates. Vanguard Group research highlights that strategies like asset location—placing tax-inefficient assets in retirement accounts—and tax-loss harvesting can materially improve after-tax outcomes.

State taxes add another important dimension. Investors in high-tax states like California may face lower net returns due to additional income taxes. In contrast, states such as Texas or Florida impose no state income tax, reducing overall tax drag. Additionally, certain investments—like in-state municipal bonds—may offer state tax exemptions, further enhancing efficiency.

Ultimately, successful investing isn’t just about earning returns—it’s about keeping them. By combining low-cost index ETFs with thoughtful tax planning, investors can significantly improve their long-term, after-tax wealth.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

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ETFs and Emerging IPOs

The ecosystem of exchange-traded funds (ETFs) tracking the S&P 500—notably IVV, VOO, and SPY—remains one of the most efficient ways for investors to gain diversified U.S. equity exposure. These funds, which we have discussed before, often serve as a foundation for many retirement investment portfolios. The S&P 500 passively replicates a float-adjusted, market-cap-weighted index that already reflects about 80% of U.S. market capitalization. However, the definition of “the market” itself is evolving rapidly as mega-scale private firms approach their Initial Public Offerings (IPOs).

S&P 500 ETFs may soon include large private companies with near-term IPOs from SpaceX, OpenAI, and Anthropic
S&P 500 ETFs may soon include large private companies with near-term IPOs from SpaceX, OpenAI, and Anthropic

Big IPOs coming soon

A key emerging issue is the IPOs of currently private companies like SpaceX, OpenAI, and Anthropic. Will they enter the index more quickly than historical precedent? Traditionally, S&P 500 inclusion required at least one year of public trading, sufficient float, liquidity, and sustained profitability. Yet, according to a May 3 Wall Street Journal article by James Mackintosh, index providers are considering changes. Specifically, they may waive profitability requirements and accelerate timelines for “megacap” IPOs. These changes will help meet investor demand for access to high-profile growth companies. Complementary reporting indicates proposals to reduce the waiting period from 12 months to as little as six months and relax earnings criteria entirely for the largest firms.

Such changes would materially affect ETF composition. Because the S&P 500 is market-cap weighted, the rapid inclusion of trillion-dollar entrants could increase index concentration, amplifying the dominance of a small number of firms. The Magnificent 7 already contribute to this issue in today’s top-heavy index structure. More large entrants could raise expected returns if these firms deliver strong growth, but also increase volatility and drawdown risk if valuations prove fragile.

ETF Investors take notice

For ETF investors, the implications may extend to taxation. While ETFs like IVV, VOO, and SPY are generally tax-efficient due to in-kind creation/redemption mechanisms, rapid index turnover—especially around large IPO inclusions—can trigger capital gains distributions in some cases. Additionally, investors in taxable accounts may face indirect tax consequences if funds must rebalance aggressively to incorporate newly eligible megacaps.

In sum, S&P 500 ETFs remain low-cost, core portfolio holdings, but their future risk-return profile may shift. The potential fast-tracking of firms like SpaceX, OpenAI, and Anthropic reflects a broader transition: from a backward-looking index grounded in profitability to a more forward-looking benchmark shaped by scale, narrative, and investor demand.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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Part-time work income and our tax alpha calculator

Happy Easter Weekend! Our mission at ETFMathGuy is to educate investors seeking tax-efficient investing and financial plans. So, we continue to provide online access to algorithms that determine tax-efficient retirement income based on our award-winning published research. Today, we are happy to announce that part-time work income is now included, another new feature requested by financial services professionals. Now, retirees and financial advisors may provide additional part-time work income to represent how many individuals and their spouses may wish to transition into retirement with wage income. Therefore, we hope this new feature will better support our users as they navigate this optimal decision-making process.

Adding part-time work income to an optimal retirement income plan

Unregistered users can access these new inputs in the same group of inputs as social security and pension income. Registered users can also add assumptions about part-time work to their plan using the comprehensive profiles page. Accordingly, the retiree and spouse each have three inputs in their financial plan, which appear under Other Income Sources. The image below shows these values for a hypothetical retiree planning to work part-time, earning $50,000 in the plan’s first year, with the amount decreasing by 30% each year for the next five years.

Three inputs to include a transition from part-time work to full retirement. https://apps.etfmathguy.com/calc
Three inputs to include a transition from part-time work to full retirement. https://apps.etfmathguy.com/calc

For this retiree, this plan reduces income by 30% per year, so that in year 2, part-time work income is $50,000 – 0.3*(50,000) = $35,000. This 30% annual reduction occurs until year 6, when there is no longer any part-time income. Similar inputs are available for a spouse, if applicable.

Observing part-time work in the retirement income plan

The image below shows how part-time work income affects a retirement plan using the Common Rule.

Common Rule Withdrawal Strategy with Part-Time Work Income for Retiree and Spouse. Source: https://apps.etfmathguy.com/calc
Common Rule Withdrawal Strategy with Part-Time Work Income for Retiree and Spouse. Source: https://apps.etfmathguy.com/calc

As this image shows, the light blue region now includes part-time work. This bar chart groups these sources of retirement income, as they are all taxed as ordinary income.

New feature summary

In conclusion, retirement plans often need to include part-time work, since not all retirees make an immediate transition from full-time work to retirement. We hope this recent enhancement helps bridge the gap so users can better understand how portfolio longevity or bequests may improve with tax-efficient decision making. Also, Contact Us if there are additional features you wish to see in our tax-alpha retirement income calculator.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

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Geopolitical Risks and ETFs for diversification

Geopolitical risks—whether from armed conflict, trade disputes, sanctions, or shifting alliances—can quickly ripple through global markets. For investors, the challenge is not predicting every headline, but building portfolios resilient enough to withstand them. Exchange-traded funds (ETFs) offer a practical and efficient way to manage these risks through diversification, liquidity, and targeted exposure to major economic sectors.

As Geopolitical Risks rise, ETFs may offer opportunities for diversification.
As Geopolitical Risks rise, ETFs may offer opportunities for diversification.

Energy and Financial Sectors

Sector ETFs, in particular, allow investors to adjust allocations in response to evolving geopolitical conditions. For example, during periods of conflict or supply disruption, energy prices often rise. An ETF like the Energy Select Sector SPDR Fund (XLE) provides diversified exposure to major U.S. energy producers and services firms. Rather than betting on a single oil company, investors gain broad participation in the sector. ETFs like this help reduce company-specific risk while maintaining exposure to a potential geopolitical tailwind.

Financials also react differently depending on the nature of the crisis. Rising defense spending or inflationary pressures may boost interest rates, supporting bank profitability. The Financial Select Sector SPDR Fund (XLF) offers diversified access to large U.S. banks, insurers, and capital markets firms. In contrast, sanctions or global slowdowns can pressure multinational lenders, underscoring why diversified sector exposure from ETFs is preferable to concentrated stock positions.

Other Sector ETFs

Technology presents a more nuanced case. Heightened tensions—particularly between major economies—can disrupt semiconductor supply chains and global trade. Yet long-term digital transformation often continues regardless of short-term instability. The Technology Select Sector SPDR Fund (XLK) spreads exposure across hardware, software, and IT services leaders, balancing cyclical and structural growth drivers.

Beyond these sectors, investors can use utilities, healthcare, consumer staples, or defense-focused ETFs to dampen volatility further. Defensive sectors such as the Utilities Select Sector SPDR Fund (XLU) and the Consumer Staples Select Sector SPDR Fund (XLP) often hold up during uncertainty because demand remains relatively stable.

Conclusions of ETF investing to manage geopolitical risks

Ultimately, ETFs help address geopolitical risk not by eliminating volatility, but by potentially reducing it through diversification into key sectors. Their transparency, intraday liquidity, and broad diversification allow investors to rebalance efficiently as conditions evolve. In a world where geopolitical shocks can emerge overnight, sector ETFs provide a flexible toolkit for navigating uncertainty without abandoning long-term investment discipline.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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Gold and Silver as Safe Haven? Volatility is Back

Investors often turn to gold and silver in times of macroeconomic uncertainty. Market participants often view these precious metals as traditional “safe haven” assets that preserve value when equities falter or inflation worries spike. In early 2026, this narrative took center stage. Both metals surged to multi-year highs amid geopolitical tensions, a soft U.S. dollar, and rising inflation expectations. However, the last week of January 2026 brought a stark reminder that even safe havens can experience intense volatility. In this post, we view this risk through the lens of liquid instruments in exchange-traded funds (ETFs).

📊 Glimpse at GLD & SLV Performance

GLD and SLV are two ETFs that track the spot price performance of gold and silver. SPDR Gold Shares (GLD) is the largest gold ETF. It is widely used to proxy gold price exposure. Similarly, iShares Silver Trust (SLV) is the premier silver ETF, reflecting broader investor positioning in silver. Over the week ending January 31, both ETFs experienced sharp swings. GLD dipped from recent highs, while SLV posted even larger percentage moves. This dip reflected silver’s historically higher volatility and tendency to amplify market sentiment shifts.

📉 Late-January ETF Safe Haven Volatility

Data from the week of January 12–18 shows how sharply these assets have been moving.

  • GLD (Gold) demonstrated an intra-week range of about ~2.35 %. Its annualized volatility of ~13 % over this week indicated relatively contained swings for gold historically—even as spot prices rose.
  • SLV (Silver) exhibited an intra-week range above ~11.5%. Its annualized volatility above ~75 % over this week underscored silver’s tendency for much larger price oscillations.

In other words, silver’s volatility, especially in extreme market episodes, can be much more than that of gold, reinforcing the idea that SLV carries greater short-term risk for traders and investors alike.

📌 Historical Risk Metrics for a Safe Haven

Longer-term risk figures support this short-term pattern.

Gold and Silver as a safe haven? Volatility is back.
Gold, Silver, U.S. Stocks, and Aggregate Bond ETF performance over the last 12 months, as of January 30, 2026. Source: https://www.etfreplay.com/charts
  • Silver ETF SLV has historically shown higher volatility compared with gold ETFs, meaning silver prices tend to swing harder and more often than gold when markets shift sentiment or macro drivers change.
  • Gold ETF GLD’s lower volatility has often made it a preferred choice for risk-averse investors seeking stability.

🧠 What This Means for Investors

The late-January sell-offs and reversals — where precious metals retreated significantly after touching record highs — illustrate that safe-haven status doesn’t equate to smooth performance in every market environment. Sharp reversals driven by shifts in monetary policy expectations or risk appetite can quickly compress profits and widen losses, particularly for more volatile assets like silver.

In short, gold and silver may still play roles as portfolio diversifiers or long-term hedges — but recent prices in GLD and SLV remind us that volatility is very real, and risk metrics matter when evaluating these in a diversified portfolio.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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Returns in 2025 for U.S. Stock ETFs: A Strong Year

The U.S. stock market delivered solid returns in 2025. Investors benefited from artificial intelligence enthusiasm, late-year Federal Reserve rate cuts, and strong earnings across several key industries. According to The Wall Street Journal, U.S. stock funds and ETFs returned an average of about 14.6% for the year. Consequently, 2025 marked a third consecutive year of double-digit gains. As we discussed previously, the market performed well despite heightened volatility early in the year,

At the broad market level, the S&P 500 (ticker: IVV) posted a robust 17.8% total return for the year. Large-cap technology and cyclical shares contributed most significantly, according to ETFReplay.com and Yahoo Finance. The Nasdaq-100 (ticker: QQQ) outperformed the broader market. Mega-cap tech names continued to anchor market breadth late into the year as optimism around AI deployment persisted.

Total Returns in 2025 for the S&P 500, Nasdaq, and other U.S. Sectors ETFs. Source: ETFReplay.com
Total Returns in 2025 for the S&P 500, Nasdaq, and other U.S. sector ETFs. Source: ETFReplay.com

Sector Leaders and Laggards

Sector ETF returns in 2025 highlighted both rotation and concentrated leadership:

  • Communication Services (XTL) was the top performer, benefiting from investments in data centers and cloud computing.
  • Technology (XLK) was among the top performers, with total return growth powered by demand for semiconductors, AI infrastructure, and software. Many XLK holdings significantly outpaced the broader market over multiple time horizons.
  • Industrials (XLI) also delivered strong returns as economic activity and capital investment improved, reflecting strength in industrial and transportation names.
  • Financials (XLF) and Healthcare (XLV) logged solid gains, as bank profitability rebounded and health care stocks rallied on earnings beats and defensive positioning.
  • Utilities (XLU) and Consumer Staples (XLP), traditionally defensive sectors, generated positive but more modest returns, with staples lagging as investors favored growth-oriented ETFs.
  • Materials (XLB) and Energy (XLE) posted marginal returns, supported by commodity demand and stable energy prices, but lacked the momentum seen in tech and cyclical sectors.
  • Consumer Discretionary (XLY) saw mixed performance, often tied to retail sentiment and macroeconomic shifts throughout the year.

Market Themes from Returns in 2025

While AI-linked ETFs — including in XLK and QQQ — powered much of the returns in 2025, concerns about valuation and potential “AI bubble” dynamics persisted. Broad macro swings — from tariff-driven drawdowns to four rate cuts by the Federal Reserve — underscored a year of notable volatility even as the market finished strong.

In summary, 2025 rewarded long-term investors with healthy total returns but also demonstrated the importance of sector diversification — as illustrated by the contrasting performance among ETFs like XLK, XLI, XLF, and defensive plays like XLU and XLP.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

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