Key takeaways
Staying invested in a diversified portfolio is key to protecting and growing wealth over the long term. However, periods of market volatility can lead to uncertainty as to whether investors should be taking action.
To understand and enhance portfolio resilience, investors may wish to consider the following questions:
- Where do you stand today? Understand what your portfolio looks like and if there are concentrations which could represent additional risk.
- Is your portfolio diversified? A well-diversified portfolio draws on different sources of risk and return which may reduce overall exposure to volatile conditions.
- Should you add fortification? Less correlated assets and higher quality equities and fixed income may offer greater resilience during uncertainty.
- Does your asset allocation meet your goals? The relative weights of assets in a portfolio will drift over time. Ensure your asset allocation still meets both your goals and your risk tolerance.
In uncertain times, it’s especially important to ensure portfolios are robust enough to weather volatility and continue to meet investing goals. We explore four key steps investors can take to enhance the resilience of their portfolios.
Building portfolios for the long term
Inflation is the term used to describe the rate at which the general level of prices for goods and services rises. A rise in prices leads to a decrease in the purchasing power of cash as the same amount of cash buys fewer goods and services when the prices of these rise.
However, shorter-term market swings can also occur. Recently we saw global equities drop 10.1% over the first week of April 2025, only to then rebound 7.8% the following week.1
Market volatility may cause uncertainty among investors as to whether they should be taking action, and if so, what action they should take.
We review four questions investors can use to understand and potentially enhance the resilience of their investment portfolio.
Where do you stand today?
The first step in building resilience is to understand what your portfolio looks like today.
Assess whether it is more heavily allocated to certain asset classes, sectors, or countries, if there are concentrated individual holdings, and whether you have high levels of exposure to any currencies.
Concentration can expose wealth to holding-specific risks, which in addition to sector-specific risks, may include increased volatility, liquidity risk, and/or regulatory risk.
Consider whether your current portfolio is exposed to more risk than you may wish to undertake in any area.
Is your portfolio diversified?
Different asset classes offer exposure to differing sources of risk and return. At an asset class level, equities tend to offer more capital growth and are generally riskier than bonds, which typically offer more of their return through income.
Diversification across asset classes can help to reduce portfolio volatility and drawdowns. Indeed, since 2000, there have only been three instances in which global equities and global bonds both fell over the same calendar year, as shown below.
In addition to diversification across asset classes, it’s also important to diversify within them. Taking exposure across geographic regions and economic sectors can provide access to a wider opportunity set of return drivers, helping to make portfolios more resilient through a range of economic conditions.
Should you add fortification?
While a diversified asset allocation can help to meet investing goals overall, in an environment of heightened uncertainty, some investors may wish to consider adding more explicit fortification to their portfolios.
This could mean increasing exposure to assets with lower correlations to the rest of the portfolio, or via higher quality assets.
Assets with lower correlations to equities and bonds may include gold related equity investments, real assets such as real estate or infrastructure, and, for suitable investors, certain alternative assets or those which aim at absolute returns, such as some hedge fund strategies.
Higher quality assets refers to subsets of equities and bonds with more resilient characteristics.
High quality equities are those with strong fundamentals, such as a stable balance sheets, consistent earnings growth and low levels of debt. Dividend grower equities with the profitability and cash flow to maintain and grow dividends often fall into this category. Financial strength may help these companies to better navigate economic uncertainty compared to their peers.
High quality fixed income assets, such as government or investment grade bonds, have less dependence on economic conditions for their performance. Moreover, the higher credit quality an issuer, the less likely a default event is to occur.
For suitable investors, certain structured products may offer possibilities to explicitly reduce downside exposure. However, we note that this entails a cost, usually realized via reduced upside exposure.
Does your asset allocation meet your goals?
Asset allocation is the key determinant for portfolio returns, so it is important to have the right one to meet your goals subject to your unique constraints and risk tolerance.
As markets move, so do portfolios. This means that to remain aligned with risk and return targets over time, it’s important to make any adjustments required to stay on track. Consider whether your asset allocation still aligns with your goals, or whether it has drifted from this over time.