With just a handful of trading days left in 2025, it's safe to say this will go down as another exceptional year for investors. Although the ride was bumpy at times, the ageless Dow Jones Industrial Average (^DJI 1.56%), broad-based S&P 500 (^GSPC 1.52%), and growth-inspired Nasdaq Composite (^IXIC 1.78%) have, respectively, risen by 14%, 17%, and 22%.
But a new year brings new challenges.
Although professional and everyday investors have clearly been enamored with the prospects of artificial intelligence (AI) and quantum computing, as well as the likelihood of further Federal Reserve rate cuts, it's from a guarantee that the current bull market will continue in 2026.
According to the time-tested Shiller Price-to-Earnings (P/E) Ratio, which is commonly referred to as the cyclically adjusted P/E Ratio, or CAPE Ratio, this is the second priciest stock market in history, dating back to January 1871. The only time stocks have been more expensive than they are now is in the months leading up to the bursting of the dot-com bubble, which saw the S&P 500 and Nasdaq Composite shed 49% and 78% of their value, respectively, on a peak-to-trough basis.
Image source: Getty Images.
Historically, pricey markets have generated weaker 10-year average annual returns. It means investors must be more mindful of their investment strategies. In other words, throwing a dart at a list of AI and quantum computing stocks probably isn't the best idea in 2026 (or beyond).
With an understanding that pricier stock markets come with the heightened risk of weaker annualized returns and the possibility of a (short-lived) crash, here are the steps I'm taking when managing my million-dollar portfolio.
Stay the course with core positions
Let me preface any discussion by noting that I'm a long-term investor at heart. The overwhelming majority of the three dozen securities in my portfolio (35 stocks and one exchange-traded fund) have been held for at least one year, with a couple of positions surpassing the decade mark. My investment philosophy is modeled after that of the soon-to-be-retired CEO of Berkshire Hathaway, Warren Buffett.
With the above being said, I'm not doing too much with my core positions, which range anywhere from my top three to top 12 holdings. Although stock market corrections and bear markets tend to affect most sectors and industries, the average bear market downturn has lasted approximately 9.5 months since the start of the Great Depression (September 1929), based on the findings of Bespoke Investment Group. Statistically, it pays to be a long-term optimist and not overreact with the investment positions you believe are your best ideas.
Furthermore, I don't foresee any of my core positions being disproportionately hurt if an AI and/or quantum computing bubble were to form and burst.
NASDAQ: META
Key Data Points
For example, social media titan Meta Platforms (META 2.52%), my fourth-largest holding by market value, generates roughly 98% of its net sales from advertising on its top-tier apps (Facebook, Instagram, WhatsApp, and Threads). While Meta has been integrating generative AI solutions into its advertising platform for its clients to create tailored messages, an AI bubble-bursting event doesn't materially change Meta's foundational operating segment.
Ready the dry powder
Although I'm not doing too much with my core positions, I am in the process of increasing my available cash and cash equivalents (I park most of my cash in the iShares 0-3 Month Treasury Bond ETF (SGOV +0.01%) since its yield is night-and-day better than the 0.01% yield my broker provides on uninvested cash).
While some of this has involved trimming long-term positions that have significantly appreciated, it also means harvesting losses on investments that have broken my investment thesis or that I no longer view as having the potential to grow into a core position.
Think of it this way: When public companies announce cost-saving initiatives, they look for operational synergies and occasionally will divest non-core assets. I'm doing something similar with my million-dollar portfolio by divesting a couple of non-core holdings that no longer align with my investment goals or can help me lower my capital gains for the current calendar year.
The goal is to increase my available dry powder so I can pounce when price dislocations do arise. Just as investors have bid up tech stocks into nosebleed territory, emotions usually come into play during elevator-down moves for the Dow Jones, S&P 500, and Nasdaq Composite. These periods of panic don't occur often, but they can lead to generational investment opportunities.
Image source: Getty Images.
Stay on the lookout for amazing deals
Admittedly, finding a good deal amid a historically pricey market is difficult. But despite being a net seller of equities in 2025, a few bargains are still catching my attention.
During the brief crash in the Dow, S&P 500, and Nasdaq Composite in early April, following the announcement of President Donald Trump's tariff and trade policy, I opened or added to six positions. But as Wall Street's broad-based indexes have marched to one record-closing high after another, the buying activity has been far more sporadic.
One of the few existing holdings I've added to in the second half of 2025 is adtech company PubMatic (PUBM 3.68%). Even though PubMatic is working through short-term challenges with one of its top programmatic ad clients, it continues to generate positive operating cash flow. It's also ideally positioned to capitalize on the growth of digital ads in the connected TV space.
NASDAQ: GT
Key Data Points
Additionally, I've added to my small but expanding stake in Goodyear Tire & Rubber (GT 2.88%). Goodyear is in the midst of a multi-year transformation that involves selling non-core assets to lower its debt and is focusing its efforts on its higher-margin tire and service operations. Goodyear isn't going to knock your socks off with its growth rate, but it's a well-known and generally profitable cyclical company that hasn't been this cheap in a while.
Add high-yield dividend stocks
The final strategy I've employed is adding a couple of high-yielding dividend stocks to my million-dollar portfolio.
According to analysts at Hartford Funds in "The Power of Dividends: Past, Present, and Future," companies that pay a dividend have more than doubled the annualized return of non-payers from 1973 to 2024. What's more, income stocks have consistently been less volatile than non-payers and the benchmark S&P 500. Statistically, buying and holding high-quality dividend stocks is a genius way to lay a firm foundation for your portfolio.
As of the writing on Dec. 23, 18 out of the 36 securities I hold in my portfolio are paying a dividend.
NASDAQ: SIRI
Key Data Points
For instance, I added to my existing position in satellite-radio operator Sirius XM Holdings (SIRI 0.56%) when the stock market swooned earlier this year. While Sirius XM has left much to be desired on the growth front lately, it remains highly profitable and is easily supporting a dividend yield that's jumped above 5%. Since it's a legal monopoly in the satellite-radio space, the expectation is that future subscription price increases can more than offset recent subscriber weakness.
Adding dividend stocks and/or dividend-focused ETFs is a smart move amid a historically pricey stock market.
