Young & Invested: The market lessons you can’t ignore in 2026
What last year’s chaos means for the decisions you make next.
Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.
This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 46
The holidays are not only a great time for an existential crisis, but also a chance to reflect on what we’ve missed. My flight back home was around five hours. Somewhere between binging White Lotus and a questionable inflight coffee, I found myself thinking about the past year in markets. Perhaps a symptom of officially entering my late(ish) twenties.
2025 was one of those years that felt as chaotic as it looked. Markets moved fast. Most of us couldn’t pause for long enough before the next headline was released and narratives shifted again. Despite the volatility, markets kept pushing higher.
Some view the new year as an arbitrary period, no different to the days before and after it. Others consider it an opportunity to re-evaluate. On the financial side, this can mean setting new goals, revisiting household budgets or checking your investment portfolio.
It’s also a time when an abundance of commentary on forecasts and ‘this time it’s different!’ sentiments emerge. And fair enough. The world is ever-changing. Being a long-term investor doesn’t mean we shouldn’t switch our brains off to the short-term.
So to begin the year, I wanted to look at a few of the themes that shaped 2025 and think about what they mean for how we invest moving forward.
Narratives lead
If last year proved anything, it’s that markets have a talent for humbling anyone who claims to know exactly what comes next. 2025 began with ongoing concern about sticky inflation, geopolitical noise and tariff turbulence. Despite all of that, the ASX 200 accumulation index finished the year up roughly 9%, the S&P 500 gained around 15%, and emerging markets soared over 30%. Notably, it was the first year since the Covid-19 pandemic where every major asset class delivered positive returns.
I don’t think the real story was in the headlines themselves, rather, it was how investors behaved underneath them. It reinforced the fact that many of us often move on short-term expectations. At times it seemed like rationality had taken a back seat with markets grinding higher despite stretched valuations, AI-bubble concern and persistent geopolitical uncertainty.
Commentators have pointed to the increasingly narrative driven market as a key source of the short-term volatility we’ve been experiencing. As investors, we spend a lot of time reacting to the micro – think inflation releases and vague central bank hints – only to watch markets move in the opposite direction.
The chart below helps paint a picture of the domestic dynamic. Underlying inflation drifted lower through the first half of the year, yet the monetary environment remained restrictive. Many saw that gap as evidence the inflation cycle was normalising. Even if the data still felt messy, it didn’t need to be perfect so to speak, but simply directional for markets to act. Rate cuts didn’t need to materialise, the prospect just needed to feel closer than they were a month ago.
Source: RBA and ABS data. Author
All of this played out against a backdrop where Aussie equities were already trading well above traditional fair-value estimates. This disconnect between fundamentals and price movement was a defining feature of 2025.
Source: Morningstar.
Global diversification finally pays off
As someone who exclusively invests in Australian and US equities, the last twelve months were rather interesting.
Over the past five years, strong returns on US stocks and core bonds have made the case for diversification beyond the US feel pretty weak.But 2025 broke that pattern, proving the first year in a while where other global markets outpaced the US by a significant margin (notable mention to emerging markets).
Source: J.P. Morgan Asset Management.
After around a decade of S&P 500 dominance, international equities staged a comeback with the MSCI World ex USA Index returning almost double that of the MSCI USA Index. Whilst I won’t get into the specific drivers behind this, it’s worth discussing the implications going forward.
For many Aussie investors (including myself), this reversal felt counter-intuitive. Years of US outperformance and the ASX holding up reasonably well made broader global diversification feel unnecessary given recency bias. But asset allocation isn’t about chasing the highest returns or investing in what recently did well. Rotating into whichever asset class or niche index which happened to outperform last year is unlikely to deliver consistent results.
It helps to pause and reflect on the assumptions built into our strategies and whether our portfolio reflects the world we’re investing in today. Looking back on missed returns does sting, but it’s a timely reminder that leadership does rotate, no matter how strong a market feels. Broader diversification isn’t always a theoretical benefit.
Last year’s results aren’t a signal to abandon ship on US equities and load up on emerging markets. We see that the gameboard above demonstrates how winners shift around unpredictability. There is an explicit randomness when attempting to chase past performance, but it doesn’t hurt to consider whether your strategy is affected by any biases.
Defensive assets reignited
During times of turmoil, people flee to where they think is safest. We saw this play out in the sudden gold rush that pushed prices to new highs as investors looked for something tangible to anchor to.
Source: ABC Bullion.
Even bonds (once left for dead) suddenly became relevant again. Yields across global markets climbed to levels not seen in over a decade. Australia’s 10-year government bond yield sat near two-year highs heading into the end of 2025.
For younger investors, this was a notable shift. Many of us have spent our entire investing lives in an environment where bonds felt pointless and equities have dominated the narrative. Now does that imply the resurgence of the 60/40 portfolio? Not really. But you can read Morningstar’s take on the current bond environment here.
High-interest savings accounts also looked appealing earlier in the year. Banks were flashing headline rates north of 5% and marketing them as a low-risk way to earn a return without getting dragged into market volatility. However, the reality that played out was far less generous. Even as savings rates appeared attractive in nominal terms, persistent inflation quietly eroded those returns. Then came three rate cuts handed down by the RBA which saw banks slash their offerings, leaving real yields closer to zero.
So was last year’s flight to safety rational? I’m not so sure. The answer will be entirely dependent on your need for capital growth or preservation. The real takeaway from this is the need to examine your risk tolerance and whether your portfolio aligns with the version of you that shows up when markets wobble or doomsayers emerge.
Market concentration passes dot-com highs
You couldn’t have lived through 2025 without being bombarded by some kind of AI adjacent slop. Whether the term makes you roll your eyes or jump up and down in your seat, it’s here to stay.
What started as a compelling pandemic era narrative has morphed into a structural force shaping global markets. A tiny cluster of mega-cap US tech names have dominated returns in recent years, however in 2025 they reached a level of concentration that is in uncharted territory.
The ten largest US companies now make up more than 35% of the entire US market. This is a level that didn’t even exist during the dot-com boom.
Narrow market leadership comes with a hoard of implications. Perhaps most important for investors are the ripple effects. When so much of global equity performance is tied to the same handful of companies, portfolios that look broad and diversified on paper can behave more like thematic bets. Any earnings wobble, regulatory shift or sentiment swing can move through the entire index.
This isn’t a new concern. Many have warned about impending crash even though strong earnings from the usual suspects is keeping the AI story alive and well. Concentration isn’t inherently bad, however it is a risk.
The markets are being driven by a handful of names at valuations that leave very little room for disappointment. It’s entirely possible that these names continue to dominate in 2026, but investors should consider whether they’re comfortable with the level of exposure they have.
