What Investing In 2025 Will Look Like

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We are marching into a year whose hallmark is likely to be volatility.

We are still in a strong uptrend, but we are overvalued if we look at the value using any metric we have ever used.

There is a lot to like.

The economy is doing reasonably well as we enter 2025.

The AI boom is, well, booming.

The sentiment is overwhelmingly positive.

Speculative fervor is rising.

The market is priced for perfection.

There is just one problem.

We live in an imperfect world.

If one of the Magnificent Seven stumbles in 2025, it could create some selling pressure, which could easily trigger uninformed forced selling by passive ETFs.

If the one that stumbles is NVIDIA, it will be forced selling on steroids.

While Wall Street remains fixated on high-flying tech stocks and speculative investments, I have been spending considerable time analyzing what I believe is one of the most compelling opportunities for income-focused investors in 2025: real asset investing. The combination of attractive valuations, steady income streams, and built-in inflation protection makes this an especially intriguing area for patient investors looking to build lasting wealth.

Let us start with what is right in front of us. Real estate investment trusts (REITs), infrastructure assets, and real asset debt investments are currently trading at valuations that remind me of previous periods that proved to be excellent entry points for long-term investors. The market's temporary disinterest has created what I consider to be a potentially significant opportunity.

Take REITs, for instance. The disconnect between public market valuations and private market real estate values is as wide as I have seen in quite some time. More importantly, many quality REITs are demonstrating robust dividend growth potential. Industrial REITs, benefiting from the ongoing e-commerce transformation, are seeing strong demand that translates into rising rental rates and increasing cash flows. Healthcare REITs, supported by demographic trends that are not going away anytime soon, are showing similar strength in their underlying fundamentals.

Infrastructure investments deserve special attention in our current environment. These assets - think toll roads, utilities, and telecommunications infrastructure - tend to generate remarkably stable cash flows regardless of economic conditions. Their monopoly-like characteristics and inflation-linked revenue streams provide exactly the kind of predictability that serious income investors should be seeking.

One area that I find particularly interesting right now is closed-end funds focusing on real asset debt. Many of these funds are trading at meaningful discounts to their net asset value while offering attractive yields. These are not your typical fixed-income investments - we are talking about debt backed by tangible assets, often with inflation-protection features built right into the underlying securities. The use of prudent leverage in these funds can enhance yields without taking excessive risks.

Speaking of inflation, while it has moderated from recent peaks, history suggests it would be unwise to assume we have seen the last of it. Real assets have historically provided one of the most reliable forms of inflation protection available to investors. When consumer prices rise, real asset owners typically have the ability to increase their own prices, protecting both income streams and underlying asset values.

The current interest rate environment adds another layer of appeal to this opportunity. As we potentially approach the end of the Federal Reserve's tightening cycle, real asset investments should benefit from both stabilizing borrowing costs and their relatively attractive yields compared to traditional fixed income.

For those new to real asset investing, I recommend building positions gradually and focusing on quality. Look for:

• REITs with strong balance sheets and proven dividend growth track records

• Infrastructure assets with irreplaceable positions in their markets

• Closed-end funds trading at discounts to NAV with sustainable distribution policies

• Management teams with demonstrated capital allocation skills

The key to success in real asset investing is not trying to time the market perfectly - it is about acquiring quality assets at reasonable prices and allowing the power of growing income streams to work in your favor over time. The current market environment is providing exactly that kind of opportunity.

Remember, the best investments are often found in areas where short-term thinking has created a disconnect between price and value. Right now, real assets appear to be one such area. I have two model portfolios filled with my favorite ones - the Real Income and Total Return portfolio.