Updated on 15 January 2026
To the surprise of many, including us, the year ended quite calmly, with stocks up considerably. The reasons:
The US economy got a boost from unprecedented AI spending
The world economy got a big impulse from the wave of imports into the US before tariffs took effect
The rest of the world responded calmly, with little retaliation, to the import tariffs, while the Trump administration considerably watered down the initial increases.
Trump’s disapproval ratings have shot up, due to inflation and affordability concerns, making it more likely that policies will be balanced after November 2026.
The US also underwent a sharp shift in currency policy from a strong-dollar to a weak-dollar policy, and saw the president attack the Federal Reserve's independence. The US dollar broke its trend and declined by 14%.
Three big questions have emerged as the leading issues for 2026:
Is there an AI bubble in the stock market?
Will the US government system stabilize, and with it the US dollar?
What is the impact of the global risk of war: Greenland, Taiwan, and Russia?
Our take on the first question is that an AI bubble is likely to exist, similar to the dot.com bubble of 2000, which overvalued companies using the internet and led to very lofty Nasdaq valuations. It is hard to see that a few companies will be able to permanently capture most of the financial benefits of the AI revolution. Over time, excessive profits are likely to be competed down when what seems new becomes “commoditized.” Our view on the US dollar is that it is likely to move back up, as Trump's import tariffs are generally pro-dollar, but short-term trends and risk may point the other way. For example, central banks worldwide, notably those of China, Brazil, and India, are reducing their holdings of U.S. dollars. Uncertainty surrounding the November elections would be a threat to the US dollar. The chances of major upheavals, such as military interventions in Greenland, Venezuela, Taiwan, and expansions by Russia, are high. It will create a pro-dollar bias, with the US still being the strongest military power, which is not physically close to any enemies. Stocks would suffer during any upheaval, but history tells us it is not permanent if the production capacity is not damaged. Our advice remains: events are tough to predict, and most information is already priced in by the market, except for fundamental differences in country performance stemming from home bias among large investors. Regime changes in countries can affect the performance; while the risk of a regime change in the US has declined, it cannot be ruled out.
Following the market shock in April, we suggested that diversification into the Euro area or a promising emerging market, such as India, could be considered by those with extensive exposure to the US and its risk of a regime switch. This argument is still broadly valid, but for very few of our clients. Indeed, it is nearly always best to just stay the course and keep your eyes on the long term. Holding a good basket of stocks has you invested in the economy and its long-term growth and is the pathway to long-term financial well-being.
Pensionfriend's portfolios performed well above long-term stock market averages in 2025, with returns of 14-16%. Over 150 years, the US market has returned about 9%, while forward-looking returns for the MSCI World Index are more likely to be 6-7%, as dividend yields and overall economic growth are lower.
2025 Portfolio Performance in Currency of the ETFs
| Large Cap | Small Cap | Overall |
|---|---|---|---|
Global Portfolio (US dollar) | 18,10 % | 9,70 % | 14,01 % |
Global Green Portfolio (US dollar) | 18,89 % | 9,70 % | 14,30 % |
Euro Green Portfolio (Euro) | 18,00 % | 14,39 % | 16,05 % |
Specifics: Large-cap stocks posted another stellar year, raising questions, though, about froth, particularly in AI stocks. The Green portfolio continued to deliver a marginally superior return compared to the global portfolio. Currently, the outperformance is mainly due to the IT sector, which has a slightly larger weight in the green indices. Small Caps performed well in Europe but continued to lag in the US, where large IT and AI companies continued their ascent, with Google leading the pack and AI chipmaker Nvidia now the largest company. As discussed in the introduction, we expect the historic pendulum to eventually restore the normal situation with excess profits and valuations reverting to more normal levels. The Top Ten Kept Outperforming, and its share of the S&P 500 increased to 37%
# | Company | Symbol | Weight | Return 2025 |
|---|---|---|---|---|
1 | Nvidia Corp | NVDA | 8,1 % | 34,84 % |
2 | Apple Inc. | AAPL | 7,0 % | 11,49 % |
3 | Microsoft Corp | MSFT | 6,6 % | 15,54 % |
4 | Amazon.com Inc | AMZN | 4,0 % | 4,81 % |
5 | Broadcom Inc. | AVGO | 2,8% | 49,19 % |
6 | Alphabet Inc. Class A | GOOGL | 2,8 % | 65,23 % |
7 | Meta Platforms, Inc. Class A | META | 2,3 % | 10,15 % |
8 | Alphabet Inc. Class C | GOOG | 2,3 % | 64,61 % |
9 | Tesla, Inc. | TSLA | 2,0 % | 18,57 % |
10 | Berkshire Hathaway Class B | BRK.B | 1,6 % | 11,43 % |
Measured in Euros, the global portfolio was about flat. The 14% Global Portfolio increase measured in US dollars was offset by a US dollar decline of a similar magnitude, resulting in a flat result in Euros. In contrast, the Euro portfolio clocked in at a highly respectable 16% — and, measured in US dollars, over 30%.
As a result, cumulative performance has converged.
Portfolio Performance Since Inception, 1/6/2022
| In Currency of the ETFs | In Euro |
|---|---|---|
Global Portfolio (US dollar) | 54,90 % | 40,62 % |
Global Green Portfolio (US dollar) | 55,72 % | 41,36 % |
Euro Green Portfolio (Euro) | 35,78 % | 35,78 % |
Overall, the portfolios have performed well since we started Pensionfriend 3 ½ years ago, with returns ranging from 36 % to 41 % in Euros and from 36 % to 56 % in the currency of the Portfolio’s ETFs.
The 14 % decline in the US dollar was one of the largest in years and, globally, one of the most significant financial events. Understanding the US dollar movement is essential background for overall portfolio performance.
The drop was primarily driven by a shift in US policy from pro-dollar to contra-dollar: The Trump administration has abandoned the decades-old strong-dollar policy in favor of a weak-dollar policy that emphasizes the cost of a high dollar for US exports and jobs.
Attacks by the Trump administration on the US Federal Reserve, which functions as the central bank, reflect this policy change.
First, in a historical context, the drop is modest. Over 10 years, the net change is modest. The depreciation in the last year effectively reversed the appreciation over the previous 8-9 years.
USD/EUR- 1 Year - 13,48 %
USD/EUR- 10 years - 8,16%
Second, the US’s underlying balance of payments is much stronger than the trade balance suggests, due to surpluses in services and the fact that the US earns much more on its foreign investments than the other way around. You can read more on this from Maurice Obstfeld, former IMF chief economist. Third, the Trump administration's policies are actually pro-dollar. Import tariffs reduce imports and should strengthen the dollar; the same applies to deregulation policies, which tend to be pro-growth, lead to higher interest rates, and an appreciated currency. Overall, we expect the US dollar to resume its long-term upward trend, driven by higher growth. This barring extreme outcomes of the US political process. This resumption may also take time. For example, central banks around the world, most notably those of China, Brazil, and India, are reducing their US dollar holdings. For now, market watchers do not expect the Federal Reserve to lose its independence and lower interest rates more than it wants. It would lead to further inflation and reduce Trump’s chance of remaining in power in the November elections.
With so much turmoil coming from the US, it is surprising how much, in the end, the main stock indices moved in tandem for most of 2025.
In 2024, Euro area and US stocks diverged sharply, with the S&P leaving Europe and the MSCI World Index far behind. Keep in mind that the MSCI World comprises about 70% of S&P 500 stocks, so the rest of the World fell far behind as the dollar appreciated and the US stock market was bullish on Trump’s election.
In contrast, in 2025, stock indices converged strongly in the first quarter and thereafter moved surprisingly in tandem. The convergence in the first quarter was very much related to the dollar moving down and a consensus emerging in the US that this administration was different, less focused on the economy but more on political and military objectives.
The comovement response to the tariff shock reflects the universally negative reaction to the surprise tariff announcement of April 2025, while the gradual calming of the situation and subsequent solid performance of most economies was a surprise that was globally shared and reflected in a strong stock market.
Main Stock Indices Measured in USD Since The Start of Pensionfriend
Many commentators fear that Europe is being squeezed between the power politics and industrial policies of the US and China. Clearly, the stock market tells a different story, with Europe’s strong performance. But that signal is ambiguous, as it may also reflect a flight out of the dollar and US markets.
The bond market suggests much more optimism about Europe than the commentators do.
In 2025, the EU and US bond markets diverged. Normally, bond markets move very much in tandem-see 2023 and 2024. But 2025 saw a clear split between the US and the EU: US 10-year bond yields declined by about half a point to 4%, while those in Europe rose to almost 3%.
The increasing yields in Europe seem to reflect confidence in its strength. If it were capital flight, yields would be down.
This divergence in interest rates also does not seem to reflect changes in budget deficits. Overall, EU deficits are projected to remain fairly stable at about 3% of GDP. Keep in mind that the rising German deficit is not representative; the Italian and Spanish ones are declining.
Similarly, the US deficit is remarkably stable. The big difference is that it is almost double the level of Europe.
Our take: the EU fiscal situation is far more sustainable, even though growth is less. For the stock market, that means the US will continue to outperform, with underlying strength driven by the size of its market and its edge in innovative industries. The budget situation will additionally create incentives in the US for more growth-oriented policies to reduce the gap. Some belt-tightening will eventually be necessary, making lower interest rates possible, which would be positive for stocks as well.
US vs Germany 10-year bond yields
Bond Portfolio Performance
The bond portfolio showed a steady positive return for most of the year, despite an uptick in interest rates. It did its job of providing a steady income.
Due to the uptick in yields, the bond portfolios returned slightly less than year-end rates. At the same time, this means the expected portfolio yields are slightly higher than the 2025 performance.
| 2025 return |
|---|---|
Government Bond portfolio (1-3 years) in Euro | 2,29 % |
Government Bond portfolio (3-5 years) in Euro | 2,45 % |
Corporate Bond portfolio (1-5) years in Euro | 3,35 % |
Euro Government Bond 1-3year (EUR) - YoY: 2,29 %
A reliable short-term prediction is, like market timing, nearly impossible, so we keep our focus on the long term.
In our 2025 outlook in last year's report, we stressed our worry about global trade wars and optimism regarding stocks, but advised staying the course, and we will do the same now.
For 2026, we maintain our optimism about stocks. Excesses tend to mean-revert, and while it is by no means certain that there is a bubble in AI-related stocks, the chances of a reversion are increasing. However, it is uncertain, and timing such a reversion is especially difficult. Which is why we don’t advise trying this, and instead suggest staying the course.
We also remain committed to small-cap stocks as a key driver and beneficiary of long-term innovation, a hedge against exuberance in AI stocks, and a well-diversified investment suitable for long-term investors.
We remain guardedly optimistic about the US dollar, as we see Europe continuing on a lower-growth path, with CO2 reductions over time becoming harder to achieve and more disruptive to industrial capacity. But short-term bears remain on the road for the dollar, notably volatility related to the US midterm elections in November.
India's Modi is standing up to Trump, and that has not helped its stock market in 2026--which ended the year slightly down in Euro terms. Also, oil embargo policies are penalizing India. But we don't see a permanent impact. We remain of the view that it is good if stocks don't rise too quickly, so you can still purchase good stocks at reasonable prices.
Following the market shock in April, we suggested that diversification into the Euro area or a promising emerging market, such as India, could be considered by those with extensive exposure to the US. This remains the case, but otherwise, it is better just to stay the course.
Remaining invested in stocks through a well-diversified portfolio focused on high-growth countries (the US and, to some extent, India) and sectors (small cap) is the best strategy for long-term financial well-being.
This annual portfolio review does not constitute investment advice. Although every effort is made to ensure the information is accurate, occasional errors and typographical mistakes may occur. Pensionfriend and Hypofriend GmbH make no warranty or representation. No warranty or representation is made by Pensionfriend and Hypofriend GmbH as to its correctness, completeness, timeliness, or accuracy.
Please note that your portfolio result will not match the aggregate results, as it depends on the exact start date and the amount you contributed in subsequent periods. Also, individual portfolios can differ, for example, due to an allocation to bonds or the percentage of ESG investment you requested.
