One of my all-time favorite investment books is titled Triumph of the Optimists. Though pessimism tends to sound smarter, optimists enjoy better investment performance. Markets have a long history of overcoming risk factors.

This year, we’ve seen wild swings between risk-on and risk-off, greed and fear. A debate swirls over whether we’re in an AI bubble. I’m reminded of a couple of years back when the question was whether we were heading for a “hard” or “soft landing,” only for a recession to never materialize. Through all the ups and downs, investors who stayed the course have prospered in 2025 (and in most prior years).

As the year winds down, here are five investment surprises from a memorable 2025.

1. Stocks are up double digits.

If you had told me on the evening of April 3 that the broad US stock market would end the year delivering double-digit gains, I would have dismissed you as a Pollyanna. Early April seems like a long time ago now, but, as a reminder, the Morningstar US Market Index was flirting with bear-market territory. Between its peak on Feb. 18 and the selloff following April 2’s “Liberation Day,” the market fell more than 19%. Then President Donald Trump announced a pause on tariffs, and April 9 brought its biggest one-day gain in 17 years.

We’ve seen a lot more stock market volatility in 2025 than we did in 2024 or 2023. The tug-of-war between artificial-intelligence-fueled bullishness and various causes for concern has led to both drops and pops. The biggest swings came during springtime’s tariff turmoil, but October and November were also quite bumpy.

Ultimately, the bulls have pulled the rope harder. Stocks have climbed the proverbial “wall of worry,” and the Morningstar US Market Index is up more than 17% through mid-December.

I see 2025 as a case study in why trading in and out of investments is so difficult. Timing short-term fluctuations can lead investors to miss out on gains. Remember the “Pandemic Panic” of 2020? The Morningstar US Market Index fell 12% in a single March day, only for stocks to recover and post a gain of more than 20% that year. To invoke another old investment saw, it’s about time in the market, not timing the market.

2. Small caps have kept underperforming.

This one doesn’t sound like much of a surprise, considering that 2016 was the last time the Morningstar US Small Cap Index meaningfully outperformed the broad stock market. It’s surprising because small-cap stocks rallied powerfully after the November 2024 US election, considered one of the “Trump Trades.” The expectation was that animal spirits would lift small caps.

The fact that the small-cap segment of the US stock market has returned to its underperforming ways in 2025 is especially surprising because we’ve had interest rate cuts and a resilient economy—conditions considered favorable to the asset class. With their simpler business models and domestic revenue sources, smaller companies are seen to be more leveraged to macro forces than their larger counterparts.

What’s plaguing small caps in 2025? For one thing, the springtime volatility hit the asset class hard, leaving small caps with a deeper hole from which to climb. Second, sector dynamics have held small caps back. The segment is lighter on technology and less exposed to AI than the overall market. Third, it’s entirely possible that the rise of private markets has diminished the asset class. High-growth-potential companies are staying private, and high-quality public small caps are going private.

3. International stocks outperformed, and emerging markets are back.

US-based investors can be forgiven for thinking global exposure is unnecessary. For years—and I mean years—US equities were the only game in town. The US share of the Morningstar Global Markets Index climbed from 40% in 2009 to 63% today. That’s far out of proportion to the US share of the global economy—roughly one fourth. A single US company—Nvidia NVDA—exceeds the market value of once-great markets like the UK.

For the few US investors who maintained global exposure, the outperformance of international stocks in 2025 has been vindicating. Foreign equities have posted gaudy returns this year, especially when translated into US dollars, which have lost value relative to most global currencies. Both the Morningstar Developed Markets ex-US Index and the Morningstar Emerging Markets Index have outperformed their US counterpart by more than 10 percentage points so far in 2025.

European markets have come to life thanks to the defense industry, as well as the financial-services sector, which has been lifted by higher economic growth and interest rates. Within emerging markets, Korea, China, and Latin America are standout performers. All entered the year undervalued.

Many expect the rally to continue, for a few reasons. First, global equity market leadership is cyclical. In the 1970s, 1980s, and 2000s, international exposure was a boon to US investors. My colleagues on Morningstar’s investment management team continue to see valuations and currency dynamics as tailwinds for markets outside the US, too. The US stock market looks top-heavy and highly concentrated by company, sector, and theme relative to overseas markets.

4. Bonds have diversified and delivered.

There are so many reasons to stay out of bonds. Debt, deficits, and inflation are all bearish factors. After the November 2024 US elections, bond yields rose on the expectations of a free-spending administration.

Yet, here we sit in mid-December with the Morningstar US Core Bond Index up nearly 7% for the year. Even more impressive than the return is how well bonds held up during the equity market selloff in spring 2025. As the stock market flirted with bear-market territory, bonds performed exactly how you would hope—providing crucial portfolio ballast. From an income standpoint, the Morningstar US Core Bond Index throws off a yield of 4.25%, comfortably above the inflation rate.

My colleagues on Morningstar’s investment management team continue to view a US core bond allocation as offering an attractive risk/reward profile. The “sweet spot,” in their view, lies in intermediate-term maturities. As ever, income investors are cautioned against reaching too far for yield into lower-quality debt.

5. Gold has glittered.

You think of gold as a “risk-off” asset. It tends to thrive on fear. The “gold bug” moniker conjures images of tin-foil hats and bunkers prepped for doomsday.

It’s surprising that in a year in which risk assets—especially fast-growing tech companies—have thrived, gold is also up. Yet, up it is. Gold prices surpassed $4,000 per ounce in October. The effect on the share prices of gold-mining companies has been dramatic.

What accounts for the gold rally? Global central banks diversifying away from the US dollar have undoubtedly had an effect. In China and elsewhere, gold is a popular reserve asset and a hedge against an increasingly unpredictable US.

The gold rally is also surprising because of the struggles of bitcoin, which has been dubbed “millennial gold.” The largest cryptocurrency rode a postelection wave and hit a price of $125,000 in October 2025. Then, it went into free fall, dropping below $80,000 in November. Technical factors, including margin calls and exchange-traded fund flows, could be contributing. With speculative assets, it’s always hard to know.

A Weird Year for Investment Performance

The year saw strong returns for both risk-on and risk-off assets. Stocks and bonds both rallied. AI optimism lifted markets, while gold, a gauge of fear, posted record-highs. The dollar sank even as US interest rates remained elevated relative to other markets.

Given 2025, what can investors expect in 2026? My prediction: more surprises.