Q3 Market & Economic Highlights

“Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”

—Peter Lynch, legendary investor

Q3 Market

Against a backdrop of seemingly mixed news, stocks moved higher throughout the past few months. Some days it was tariffs, other days employment fears. We’re in a federal government shutdown, and China is dialing up its rhetoric. Through all of it, global investors have looked past near-term worries and towards the easing of interest rate policy around the world.

It’s worth repeating the importance of time horizon when investing. Headlines may impact short-term traders, but if the goal is to preserve purchasing power and give your dollars a chance to grow, the focus should be on outcomes over full cycles and decades not 2-3 months. More on this later, but here is a good reminder of the benefits of zooming out:

Q3 Actions

Given the dominance in recent years by a handful of large tech/AI stocks, we made some tweaks that we think may set up better in the years ahead. In accounts in which there would be minimal tax consequences, we moved from the full S&P 500 Index ETF (SPLG) to the more targeted S&P 500 High Quality ETF (SPHQ). This strategy focuses on the subset of S&P 500 companies with high ROE, strong earnings, and robust balance sheets. Yes, AI & technology dominate the headlines, but there are leaders in other sectors that offer compelling investment opportunities.

We also repositioned the international equities in the portfolio.

We liquidated long-term holdings GQJIX, BCSFX, and SCIEX, and reinvested the proceeds into AVDE and FRDM. These funds have unique drivers and strong track records, and more efficient tax treatment as exchange-traded funds (ETFs) compared to the three open-end mutual funds we owned.

Avantis International Equity (AVDE) focuses on undervalued securities with higher profitability, generally outpacing their peers and benchmarks.

Freedom 100 Emerging Markets (FRDM) is managed to focus on Emerging Market equities that have high freedom scores … think more Taiwan, Chile, Poland—and excluding China, Saudi Arabia.

Q4 and Beyond

Stocks have historically done well through late fall and winter, and we don’t see enough issues to overwhelm that tendency. There will be plenty of scary headlines, the obvious ones being our back-and-forth with China. No doubt there are a number of risks we need to take into account, but that is the reason we have a defensive sleeve in our portfolios.

In general, it doesn’t pay to be overly defensive when fiscal spending and interest rate policy are positioned favorably. And it would be surprising if those conditions changed much before next year’s midterm elections. After that? Discussion for another day…

Growth and Defensive Assets

We mentioned this in the opening, and thought it warranted more detail. Once you eliminate the unforced errors of speculation, there are two major types of risks when investing:

• Drawdown—stocks fall sharply, at a time you need the money
• Longevity—owning fixed assets that don’t rise with your expenses

Good investing aims for a balance of these risks, owning enough assets that can grow (stocks, bitcoin, real estate) and enough that can be a source of protection in a sharp drawdown (cash, high-quality bonds, equity hedges).

For us, we’re incredibly discriminating when it comes to the defensive sleeve, so we can continue to comfortably own the growth assets that are needed for outpacing the most consistent force of all … the growth of government debt. Its impact may be slight in the near-term, but consistently spending 6% more than you take in shrinks the value of today’s dollars, and ultimately can imperil overly conservative investors:

U.S. Exceptionalism

While governments around the world compete to see who can shrink  their currency the most, U.S. companies far outpace the world when it comes to innovation and profitability. For a host of reasons, we see them continuing to lead the world.

While we all see articles about high stock prices, there are clear reasons for U.S. stocks to be valued higher today than they were in the past. In the process of shedding fixed expenses and becoming “asset light”, they’ve seen an increase in profit margins that is well-entrenched in the corporate culture of doing more with less.

U.S. exceptionalism should not be confused with U.S. exclusivity. At our core, we are global investors. Global diversification contributed to strong returns in 2025.

While AI dominates the headlines and speculation continues on a possible bubble, it’s worth noting that other sectors are contributing strong performance to the broad U.S. market.

Conclusion

In general, keeping the growth and defensive sleeves both properly constructed and properly combined remains our primary investment focus. We’ll continue to monitor conditions and your specific financial plan. As always, we appreciate your trust and welcome your feedback.

*The views expressed represent the opinions of Compass Ion Advisors, LLC, as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, an investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial, or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website here. Past performance is not a guarantee of future results.