Maintaining a disciplined investment approach is essential for your long-term goals. Getty Images
Maintaining a disciplined investment approach is essential for your long-term goals. Getty Images

Four ways for investors to build portfolio resilience



As we embrace the spirit of New Year’s resolutions, it's not just our personal goals that deserve a fresh perspective – our financial intentions and portfolios do, too.

This is an opportune moment for a comprehensive wealth check, ensuring that your strategic asset allocation remains aligned with your long-term goals and risk tolerance.

After an outstanding year for risk assets last year, investors can continue to build on this strength. While we anticipate continued market gains ahead, increased macroeconomic volatility underscores the importance of focusing on portfolio resilience to help safeguard your wealth and confidently navigate unexpected shocks.

Here are four actions worth considering:

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      1. Rebalance

      You may not have fully grasped how the equity market gains in recent years may have tilted the balance between stocks and bonds in your portfolio. For example, if you were allocated to a 60/40 stock-bond portfolio in early 2020 and haven’t rebalanced since, your portfolio may have drifted to an 80/20 allocation.

      Such allocations come with distinct risk profiles and return expectations, which may no longer align with your risk tolerance, potentially leading to a misalignment with your financial goals.

      From a macroeconomic perspective, we think risks today are broadly balanced between recession and inflation, necessitating portfolios that are attuned to both risks. Within asset classes, rebalancing is also essential to maintain the right mix between sectors, factors, styles and regions.

      2. Manage concentrated positions

      Effectively managing concentrated positions is crucial for portfolio resilience.

      Our research indicates that about half of all publicly traded companies experience a catastrophic loss in value (a 70 per cent peak-to-trough decline that is not recovered) and about two-thirds underperform the index.

      Additionally, a significant concentrated cash position can act as a hidden obstacle to achieving your long-term goals and even erode purchasing power. While cash is necessary for one’s lifestyle, it’s important to remember that the current high yields on cash are not here to stay.

      3. Lean into income

      Increasing the share of total return driven by income can help bolster your portfolio’s resilience.

      As yields on cash and Treasury bills decline, investors are increasingly on the lookout for new income sources.

      Historical trends suggest that between $600 billion and $2.2 trillion of money market fund assets will move to find new homes.

      Within the fixed-income arena, diversifying across various market subsectors, including high-quality sukuks and investment-grade bonds, may offer broader income sources.

      Meanwhile, quality dividend-paying equities, currently trading at a discount relative to the market, tend to exhibit only 80 per cent of equity volatility.

      Depending on one’s lifestyle needs, investing in direct lending, real estate debt, equity and infrastructures can provide additional ways to enhance income, though these may require a trade-off with liquidity.

      4. Defend against inflation

      Core fixed income remains a cornerstone of diversified investment portfolios. Yet, as inflationary pressures mount, assets like infrastructure can also help mitigate inflation risk while potentially strengthening portfolio resilience.

      Over the past four years, traditionally diversified portfolios have faced challenges in maintaining their resilience, with stocks and bonds increasingly moving in tandem and showing a positive correlation.

      Now more than ever, this shift underscores the importance of incorporating assets such as real estate, commodities and infrastructure, which have historically maintained low correlations with equities and fixed income.

      Gold – the original safe-haven asset – can serve as a potential hedge against inflation, geopolitical risk and uncertainty around sovereign debt and deficits. We expect gold prices to find continued support from central banks, particularly in emerging markets.

      Whatever the markets have in store, your wealth check and renewed portfolio resilience can give you confidence that your investment decisions align with your long-term goals.

      While short-term market volatility may tempt reactionary responses, maintaining a disciplined investment approach grounded in robust fundamentals remains essential for your long-term goals.

      Steven Rees is head of investments at JP Morgan Private Bank for Middle East, Africa & Turkey

      Updated: January 29, 2025, 4:00 AM