“Money, if it does not bring you happiness, will at least help you be miserable in comfort.”
– Helen Gurley Brown (founder and editor of Cosmopolitan magazine)
If you enjoy this newsletter, please share it!
In this issue
- Key market and policy takeaways (Q3 2025 & year-to-date)
- My Take
- A new investment idea
- Case Study: tackling a client’s tax challenge
- A “Question from the Audience” – Roth IRAs
- Reader survey: what should I write about?
Key Takeaways
- U.S. stocks had their best Q3 since 2020: S&P 500 +8.1 and Nasdaq +11.2%, as the Fed cut rates in September.
- Lower rates, positive earnings, and market strength drew $377 billion into ETFs during the quarter, 43% higher than Q2 2025 and double the quarterly average since 2020
- Even though they grew at a slower rate in Q3, international equities continue to outperform for the year (through Q3 2025) – Developed Markets +24%, Emerging Markets +27%, vs. S&P 500 +13%.
- Global trade tensions, especially between the U.S. and China, are still driving volatility
- Valuations of US stocks neared all-time highs, as AI investment and retail investor euphoria drove the market forward
My Take
We’re seeing a familiar late-stage bull-market pattern. Institutional investors have shifted some money abroad, driving international outperformance, while retail money rushes into expensive U.S. growth names. Historically, such surges and high valuations end poorly – though the timing of downturns is unpredictable. (See my LinkedIn post on high valuations and future returns)
Unlike the tech bubble of 25 years ago, today’s driver is AI, not the early Web. I don’t believe this is a true bubble….. yet – well-heeled, established companies are driving investment, and competition between themselves is driving them forward. But stock valuations are stretched.
To navigate this complex environment, best practices that could be applied to today’s market are:
- Ensuring adequate international and emerging market stock exposure – Portfolios heavy in the “Mag 7” and other U.S. growth names carry concentration and valuation risk.
- Looking past cap-weighted index strategies – most indexes hold positions in stocks based on their relative market value. Right now, growth is coming from the biggest tech companies, which causes investment concentration within cap-weighted indexes to grow. This creates higher prices and higher risks than index investors realize.
- Exploring style diversification – you can combine a buy-and-hold approach with risk-managed, trend-aware strategies – which brings us to our next section…….
A New Investment Idea: Momentum Investing
Technically, Momentum Investing isn’t new. Decades of research confirm that assets already showing strength often continue to outperform – hence the famous investing phrase, “the trend is your friend.”
At Prospero Wealth, we draw from Gary Antonacci’s book Dual Momentum (which won awards for advancing active investment management) and his subsequent model refinements.
I know Gary personally, have researched his methodology, and license his trading system. It is available only through select advisors, hedge funds, and family offices (ultra high net worth individuals).
Gary’s method uses various ETFs of stocks, bonds, gold, and cryptocurrency, attempting to rotate into assets with upward trends and exit those seen to be losing strength. Market action and technical signals identify both opportunities and risks, creating a systematic approach that complements traditional diversification methods.
Diversifying how you invest, not just what you invest in, is powerful. For those with concentrated stock positions, style diversification is another way to diversify if you have a stock-heavy portfolio but want to take advantage of market strength in the short-run.
(For a deeper dive, see the Momentum Investing blog on my website.)
Case Study: Reducing Taxes for a Tech Executive
“John” – a Silicon Valley executive – is paying nearly 50% of his income to federal and state taxes, driven by the annual vesting of his RSUs. We used his company’s Deferred Compensation Plan to reduce his taxes and diversify simultaneously.
John now sells a portion of his vested shares for living expenses, while deferring 50% of salary and 90% of bonus, lowering his taxable income by mid-six figures. Deferred funds grow in a diversified, tax-deferred portfolio until withdrawal over a five year post-employment period.
This plan:
- Cuts current-year taxes by hundreds of thousands
- Reduces taxes in any deferral year while he lives off stock proceeds
- Diversifies his portfolio without triggering capital gains
- Shifts future income into years likely to be taxed at lower rates
Each quarter I’ll share another case study illustrating strategies for different client situations.
Question from the Audience: Can I take advantage of a Roth IRA?
The short answer to this client’s question: yes – but not in the traditional way.
Roth IRA holdings grow (and can be withdrawn) tax-free, but traditional contributions phase out as an individual’s gross income approaches $165K ($236K for couples). There are three other options that people can use, however:
- Back-Door Roth IRA. Contribute after-tax dollars ($7–8K per year) to a traditional IRA, then convert to a Roth. The impact is modest, but tax-free compounding and proceeds are valuable
- Roth Conversion. Move money from a traditional IRA into a Roth, paying income tax on the converted amount now to secure tax-free growth and distributions later. If you can fund the tax from another account – and you’re in a temporarily low bracket (e.g., career break, startup phase, early retirement) – this can yield major long-term benefits.
- Mega Back-Door Roth IRAs. Some corporate 401K plans (such as Fidelity NetBenefits plans used by many technology companies) allow you to make after-tax contributions up to $46,500 (2025) for Roth IRA tax treatment (even if your income precludes it). Check with your company’s benefits leader to see if your 401K plan qualifies.
Carefully timed conversions during lower income and/or early retirement years can lead to tax benefits later in retirement. My client’s 401K doesn’t qualify for a Mega Back-Door Roth, but we will look at a Roth conversion once his income drops after he leaves work.
Reader Survey: What Should I Cover Next?
This newsletter is a new way for me to share practical strategies with people like you. I’d love to hear what topics would be most valuable for me to write about next quarter.
Email mike@prosperowealth.com, and tell me which areas interest you most:
- Markets
- Investing / Risk Management
- Investment Products & Strategies
- Funding Future Goals
- Taxes
- Retirement
Feel free to be specific about what aspect of the topic you want me to address.
If you received this from a friend and want future editions, click [here] to subscribe.
— Mike
Important Disclaimer: The information provided in this newsletter is for general informational and educational purposes only and does not constitute investment, financial, legal, or tax advice.
Every individual’s financial situation is unique, and you should consult with a qualified financial professional before making any investment decisions. All investments involve risk, including the possible loss of principal.
