Diversify, diversify, diversify!

"A tariff a day keeps the investor away" – or so it seems lately. With each new announcement from Washington bringing with it a fresh wave of market volatility, you may be wondering whether it warrants a pull back from the US.

It's a reasonable question, but take a step back and you'll see that we've been here before. Volatility is uncomfortable, but there’s opportunity to be found. It’s simply how markets process new information. The key isn't about avoiding it entirely, but positioning your portfolio to thrive despite it.

Nothing new under the sun

Trade tensions aren't new to markets. In 2018, when the previous Trump administration announced tariffs on steel, aluminum, and various Chinese goods, markets reacted with immediate volatility. The S&P 500 fell over 10%, and many analysts predicted the end of the bull market. Investors faced a similar dilemma: should they reduce their US exposure?

Those who maintained their positions were ultimately rewarded. From the first tariff announcement in March 2018 to the end of 2019, despite the noise, the S&P 500 gained over 20%. Short-term market reactions gave way to long-term growth as businesses adapted and found new opportunities.

Remember that headlines move faster than fundamentals. The US remains a powerhouse in the global economy, home to some of the world's most innovative companies and the deepest capital markets. While policy shifts can create legitimate short-term concerns, they may not necessarily undermine these competitive advantages. (For more on Trump’s agenda, see our latest CIO Insights: No Pain, No Gain.) 

So, rather than asking, “Should I move my investments out of the US?”, the better question might be, “How do I manage my investments in the US?” The goal here is to ensure that your portfolio isn’t overly reliant on any one market or outcome.

Divergence creates opportunity

We return to a timeless lesson in investing: diversification. While the US remains an essential part of a global portfolio, adding geographical exposure to Europe, Asia, and emerging markets adds balance. Complementing this regional mix with various asset classes provides further protection against volatility.

When US equities pull back, international markets, bonds, or alternatives can move in entirely different directions. In fact, we saw this play out over the past few weeks: when the S&P 500 was down 5%, global equities outside the US were up 6%. Gold surged over 10%, showcasing its safe-haven role, while global bonds returned a steady 2.5%. If you’re an owner of a well-diversified portfolio, you’re likely already participating in these bright spots.

It’s a broader pattern of divergence across markets and currencies. The dollar index has fallen 5% since January. But it’s exactly this kind of divergence that creates opportunities where thoughtful rebalancing and strategic positioning add value. Investing globally also means indirect exposure to other currencies – your stake in, say, European equities isn’t just a bet on those companies, but also on the euro.

This divergence extends beyond public markets. Private investments – private credit, private equity, and venture capital – typically follow different cycles than public securities. They're not immune to economic forces, but they avoid the sentiment swings that drive day-to-day market volatility – their performance is anchored more to business fundamentals than market sentiment.

What is within your control?

You can’t control the markets, but you can control your investment plan. Waiting for perfect clarity often means missing significant opportunities, so instead of trying to predict every policy shift or market swing, here are some strategies that will serve you well in any environment:

Diversify, diversify, diversify: The current environment shows why diversification remains the only "free lunch" in investing. If you're invested in something like our General Investing portfolios, then you already hold a globally diversified mix of assets. But if you find that your portfolio is heavily concentrated in US indices like the S&P 500 or the NASDAQ, consider allocating to other assets. When US equities lag, other markets pick up the pace. It's a way to ensure you have multiple paths to potential returns.

To diversify further and bring down the volatility of your portfolio, consider private market investments. As an example, even in the worst five-year period over the last 28 years, private credit still generated a 4.5% annual return.

Use volatility as an opportunity: If you're investing regularly, today's market environment may actually be working in your favour – dollar-cost averaging into quality assets tends to create better long-term entry points. You might even consider intensifying your investments during periods of volatility – what’s known as value-cost averaging.

Don't worry about which day of the week to schedule those transfers. Some data suggests Wednesday – sitting comfortably in the middle of the trading week – beats out the others, but I’m not sure if the market really checks its calendar. The real magic here is consistency.

Reassess your cash reserves: Economic uncertainty demands a robust emergency fund, typically 3–6 months of expenses. But where you keep these funds matters too.

Ultra-low-risk cash management portfolios, like Simple, offer a balance – competitive yields with quick withdrawals (typically within 2–4 business days). This ensures you're always earning returns on your safety net while avoiding the event where you might need to withdraw from your investment portfolios at the wrong moment.

Assess your risk profile: Volatility has a way of testing theoretical risk tolerance against emotional reality. Take a moment to reassess – are you still comfortable with the level of risk in your portfolio, or have your financial goals, income, or time horizon changed? If you're finding that market swings are causing more anxiety than you'd like, you can adjust lower risk by adjusting your allocations – adding more bonds to the mix, for example. Ultimately, your investment strategy should reflect both your long-term objectives and your ability to sleep well at night.

If you have a General Investing portfolio, changing the level of risk you’re exposed to is as easy as shifting a slider in our app. No need to create a new portfolio – simply open your StashAway app, navigate to your portfolio, tap the three dots in the top-right corner, and choose ‘adjust risk’.

To sum it all up: the world isn’t ending, and neither is the market. While the headlines may paint a picture of doom and gloom, the reality is simpler: the market is just doing what it’s always done – adapting. And so should we.