Last Updated on May 5, 2026
Overview
2025 will most likely be remembered as a pivotal year, whether it was due to rapid changes in the AI world, persistent geopolitical developments, or, above all, a fundamental shift in the global economy. The abundance of events that transpired in 2025 once again provides a wealth of lessons for investors to learn from. Let’s go over what they are.
Chaos in the World of AI
In late January 2025 [1, 2, 3], the AI space was thrown into disarray when it was revealed that the Chinese AI model DeepSeek used significantly fewer resources (computer hardware and money being the major ones) for its development and ongoing operation than other AI services, most notably the US-based ChatGPT.
This news triggered a massive tech selloff, with NVIDIA being hit the hardest with a nearly $600 billion loss in its market capitalization. Talk about a rough start to 2025.
So, how come financial markets reacted so extremely? Because of DeepSeek’s comparable performance to ChatGPT and other high-end AI models, while being substantially cheaper to develop and maintain, it immediately cast doubt on whether the billions of dollars being poured into AI, specifically in the US, is worthwhile.
Why should AI companies spend exorbitant amounts of money on developing power infrastructure, creating large data centers, and buying expensive hardware such as graphics cards (of which NVIDIA is a major supplier) when it was clearly demonstrated that such massive expenses aren’t needed to create a world-class AI model?
All of a sudden, the AI hype train that has attracted billions of dollars in capital appeared to be nothing more than a grossly inflated bubble.
Whether a given investor had AI-related holdings or not, the lesson learned from this major event is clear: whenever you want to invest in something that is currently experiencing unprecedented growth, it doesn’t hurt to determine if this growth is organic or is grossly inflated by hype/excessive optimism.
Time and time again, investors keep falling for the same trap: a new “popular thing” takes the world by storm > “popular thing” has lots of investment potential > investors pour exorbitant amounts of money into the “popular thing” with the hope of making easy, substantial returns > “popular thing” turns out to be grossly overvalued and collapses at the first sign of trouble.
Now, in this particular context, this isn’t to say that investing in AI should be dismissed: its long-term potential has yet to be realized. Instead, when dealing with any new technology, investors would be wise to rationally assess its merit before deciding to commit any capital and not succumbing to FOMO simply because the hype is too hard to ignore.
US Receives Credit Rating Downgrade
For decades, foreign investors have long viewed US government bonds as the undisputed “gold standard” for their stability. Given that it is the largest economy in the world (as measured by nominal GDP) and backed by the undisputed “global” currency, the US dollar, the possibility of the US defaulting on its bonds sounded nothing more than a wild dream.
However, something interesting happened on May 16, 2025: the credit rating agency Moody’s downgraded America’s sovereign credit rating one notch from its top-tier AAA to Aa1 [1, 2, 3].
This credit downgrade marked the last among the “Big 3” credit rating agencies to do so: in August 2011, Standard and Poor’s downgraded the US from AAA to AA+, then in August 2023, Fitch cut the rating from AAA to AA+. The downgrades across the Big 3 shared one unifying reason: America’s national debt has rapidly grown and is still growing, with little action being taken to seriously address it, raising concerns about America’s future financial health.
Now, this isn’t to say US bonds are suddenly worthless (the merit of US bonds is up to investors to decide), but this final downgrade, along with the ones before it, offers a few key lessons.
First, America’s credit downgrades are clear proof that no country, regardless of how “strong” it appears to be, is immune to downside risk. Just because a given country has historically enjoyed a robust, stable economy is no guarantee it will continue to do so indefinitely.
Sometimes, external, uncontrollable factors are legitimate culprits, but most of the time, the real reason behind a country’s economic rise or decline is government policy. The effects of a single policy may seem inconsequential, but the effects of dozens of them over several years will add up significantly, for better or for worse. This is why investors cannot afford to ignore the domestic politics of the countries they invest in, whether they want to or not.
All of the Big 3 credit rating firms cited America’s ballooning national debt as a reason for the downgrades they issued. This is not something that happened by accident: successive US administrations have failed to implement effective policies to control government spending and increase revenue, leading to the current financial situation the country now finds itself in.
Investors who keep an eye on domestic political affairs can pick up on signs of promise or turmoil ahead of time, giving them time to act decisively before it is too late.
Second, America’s credit downgrades directly challenge the notion that developed markets are bulletproof. Many investors choose to keep their capital solely in developed markets (i.e., the G7, Australia, Japan, Singapore, Korea, Taiwan, to name some places) based on the notion that “inferior” markets, namely emerging and frontier ones, are too risky to even consider getting involved in.
The world is constantly changing, which means that a country’s financial health isn’t set in stone and will inevitably change. Just because a given country is classified as having a developed market doesn’t mean investors can simply leave their capital and forget about it.
Intelligent investors know they operate in a world that’s constantly evolving, and as such are always looking for new ways to adapt, such as looking into emerging and frontier markets. Assuming that one country, or a handful of countries, will remain “safe” investment destinations forever can prove to be very costly.
Geopolitical Tensions and Market Reactions
In June 2025, Israel launched a series of military strikes against Iran, causing a sharp increase in oil prices and an equally sharp decrease in financial markets [1, 2]. As if the tensions weren’t already high enough, the US conducted its own military strikes shortly after Israel’s, further compounding an already delicate situation.
These geopolitical events and their subsequent impact on global oil prices and financial markets once again present a stark reminder to investors: in an increasingly interconnected global system, geopolitics and its consequences are unavoidable.
Some investors naively believe they can avoid international developments by investing only in certain parts of the world or by tying up a significant portion of their portfolio in domestic holdings. They are wrong.
Even if an investor has a 100% fully domestic portfolio or chooses to invest in a handful of “select” countries, financial markets will always be subject to the whims of supply & demand, bouts of irrationality, and investor sentiment, all of which are international in scope.
No matter how hard investors try, it’s impossible to be completely spared from events that transpire around the world. However, those who succeed accept this reality and respond accordingly.
The Main Headline: US Tariffs
Of all the major events that transpired in 2025, the one that undoubtedly caught the attention of the entire world was the global reciprocal tariffs the US imposed on virtually all of the countries it trades with.
There’s no shortage of articles documenting the US tariffs and how everything unfolded throughout the year; as such, we will not review the details again here. That’s because there are multiple lessons, across multiple domains, that these tariffs can teach investors. Let’s go over what those are.
First, when analyzed through a political lens, the US tariffs were a clear demonstration of how domestic political decisions can have significant, wide-ranging impacts. It didn’t take long for US financial markets to react to the tariff news: within 48 hours, the losses sustained were already severe [1, 2, 3]. All it took to wipe out trillions of dollars in market value was the decision of a single man, which is once again a stark reminder that investors cannot afford to turn a blind eye to domestic politics, even if they want to.
From a broader geopolitical perspective, the US tariffs demonstrated how all it took to rattle the entire global economy was the action of a single, major economic player.
Very few, if any, of America’s trade partners were spared from the tariffs, with many countries forced to directly negotiate more favourable rates on a bilateral basis. The US levied especially harsh tariffs on China, which led to a subsequent tariff war with each side raising tariffs on the other until they both agreed to stand down.
Love it or hate it, geopolitics will always rear its ugly head in most investors’ affairs, and as such cannot be ignored.
In terms of portfolio strategy, this tariff drama served as a clear demonstration that a truly diversified portfolio is comprised of holdings from around the world. In other words, without geographic diversification, a portfolio isn’t truly diversified at all.
A portfolio that’s comprised of multiple asset classes and shares from several companies sounds diversified, but not if they’re all based in one country – if that country’s financial markets or economy falter, this “diversified” portfolio likely will too.
Meanwhile, the seemingly never-ending market volatility that gripped much of 2025 is yet another clear example that, in the short-term, emotions dominate financial markets. Any time there was tariff-related news, whether it was good or bad, financial markets reacted almost immediately, even if the news wasn’t anything substantial.
In the short-term, emotions spread like an untamed fire while the facts are either overlooked or totally ignored. This is why choosing to act based on short-term market activity is usually ill-advised unless investors have full confidence in what they’re doing. Otherwise, choosing to do nothing and simply waiting things out may prove to be the better option.
After having discussed the political, geopolitical, portfolio strategy, and market volatility lessons from the US tariffs, this leads us to our last, and arguably most sobering, lesson: investors can do everything right yet still suffer losses simply because of factors well beyond their control.
Countless variables can affect investors, yet fall far beyond their ability to control. However, there are still many variables that investors can directly influence, which is why they must always be aware of what falls within their locus of control. Just because multiple external factors can influence a portfolio doesn’t mean investors are totally powerless.
Wrapping Up
2025 proved to be a surprisingly busy year, and all the commotion that ensued made it easy to forget the abundance of lessons waiting to be picked up by investors.
If there is one common theme amongst all of the lessons we discussed, it’s that modern investing is undeniably a global activity and will only continue to globalize. An investor’s portfolio will always be affected by developments that take place well beyond the borders of the country(ies) they choose to invest in.
The global volatility caused by the US tariffs is something worth keeping an eye on for its long-term impact. It remains to be seen if one country truly does have the power to shake the entire world, or if a globalized system can shrug off the actions of even its largest, most influential participants.
