Protecting a portfolio from market volatility isn’t about avoiding drops entirely — it’s about reducing damage and staying positioned for recovery. Our modern era, especially the last few years, has been riddled with geopolitical and natural disaster events affecting markets.
Volatility is a reality, and the best we can do is give our investment portfolios the best chance to recover from volatility and earn favourable returns.
There are various ways that you can help bolster or protect your portfolio against inevitable volatility.
Reactive behaviour is the biggest threat to your portfolio. Often, volatility leads to panic and emotional decisions. Panic selling usually occurs after a market drop, and investors chase rallies.
It is vital to manage behaviour and stay disciplined. Investing is a long-haul marathon, not a sprint race (although it can be unnerving to see your stock take a hit). A written investment plan can help you stay disciplined.
A properly diversified portfolio is designed to ride the ups and downs in the market over the long term.
Slow and steady wins the race.
Diversification is a tool used in investing to spread risk and reduce the chance of losses if markets become volatile. This means spreading investments across geographical regions, asset classes, and sectors.
This means spreading investments out over different economic regions. Geopolitical events that affect one region might not affect another, and markets in some regions may react differently from those in others.
This helps spread risk in a portfolio. For example, North America (US and Canada), Europe and the UK, Asia, Africa, Latin America, North America & the Caribbean, the Middle East & North Africa and Australia & New Zealand, etc.
Regions could also be divided into emerging or developing markets like Asia and Latin America, and established markets like the US and Europe.
Sectors are broken down into various categories, and investors can use sectors to diversify a portfolio, as they react differently to one another.
Information Technology – e.g. Microsoft, Nvidia, Meta, Amazon, etc.
Healthcare – e.g. Johnson & Johnson, Eli Lilly, Novartis, AstraZeneca, etc.
Financials – Bank of America, JPMorgan Chase, Berkshire Hathaway, etc.
Consumer Discretionary – Starbucks, LVMH, BMW, etc
Communication Services – Netflix, Walt Disney & Co., AT&T, etc.
Industrials – Boeing, KLM, SpaceX, FedEx, etc.
Consumer Staples – Kellogg’s, Walmart, etc.
Energy – Chevron, BP, Shell, etc.
Utilities – National Grid, Duke Energy, etc.
Real Estate – American Tower, WellTower, Realty Income, etc.
Materials – Anglo Gold, De Beers, Rio Tinto Group, etc.
Asset classes are groups of investments with similar attributes that behave similarly in the market. Financial advisers use asset classes to diversify a portfolio. Asset classes have different investment risks attached to them.
Diversification is essential for building a long-term savings portfolio that will mitigate risk and maximise earning potential. Always consult with a financial adviser before making any investment decisions.
Rebalancing is the process of balancing out a portfolio by returning the asset allocation to its original values and the investor’s original risk level.
Over time, asset allocations can change according to market performance, thus changing the value of the assets and the investor’s risk level. Rebalancing involves selling or buying assets to regain the original weighting and risk level.
Rebalancing helps maintain your desired asset allocation and prevents excessive exposure to riskier assets. If your target allocation is 60% stocks and 40% bonds, but stocks perform well and grow to 70%, your portfolio becomes riskier than intended. Portfolio rebalancing brings it back to the intended mix.
Certain assets historically hold up better in turbulent markets, such as:
Unit cost averaging, or dollar cost averaging, as some say, means investing regularly instead of timing the market:
Market fluctuations affect the cost of the units in funds. A unit is basically a share in a fund. With every regular contribution you make, you purchase units of the fund to the value of your contribution. When the fund price is low, it means you can purchase more units. Higher prices mean you purchase less units for your money. Over time, the more units you purchase, the more profit you will make when markets are favourable.
During volatility, profitable companies with strong balance sheets tend to fall less and recover faster. Look for companies that have low debt, a stable cash flow and durable competitive advantages.
Volatility is normal — markets historically recover over time. The goal is to survive drawdowns and stay invested.
Protecting a financial portfolio against market volatility requires a disciplined strategy built on diversification, long-term planning, and regular portfolio review. By allocating assets across different classes—such as equities, bonds, alternatives, and real estate—investors can reduce exposure to any single market movement and improve overall resilience.
Speak with a financial adviser to ensure that your financial portfolio is suitable protected and diversified against market volatility.
This article is provided for informational purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any financial instrument. Past performance is not indicative of future results.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.
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