Building an All-Weather Portfolio: How to Protect Your Investments in Uncertain Times

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As economic uncertainty rises and the political landscape shifts, it’s natural for investors to feel uneasy. With a general election on the horizon, markets may experience some turbulence in the months ahead.

But here’s the good news: a balanced, well-diversified portfolio can help you ride out the volatility while protecting your investments over the long haul. History shows that no matter who wins the election, the equity markets tend to rise in the long run.

Here’s how to structure your portfolio to weather any economic storm.

A balanced portfolio is like your financial safety net, designed to reduce the impact of market swings. By holding a mix of assets (like stocks, bonds, cash, and maybe alternative investments depending on your tolerance), you’re spreading your risk across different sectors, limiting exposure to any single asset class. This approach can help smooth out returns, especially during periods of economic or political uncertainty.

In a recent study from Fidelity, diversified portfolios with a mix of stocks, bonds, and other asset classes outperformed those heavily skewed toward one asset, especially in volatile periods. Historically, portfolios with a 60/40 mix of stocks to bonds have managed to generate consistent returns, even in challenging times. This ratio allows for enough growth potential from stocks while providing stability through bonds.

The Rebalancing Act: Why (and How) to Rebalance Your Portfolio

When the markets are volatile, your portfolio’s asset allocation can shift. For example, if stocks surge in value, they might take up a larger percentage of your portfolio than you originally planned. Suddenly, you’re overexposed to equities, which can lead to bigger losses if the market takes a downturn.

Rebalancing your portfolio brings your asset allocation back to its intended mix. Here’s how to do it effectively:

1. Set a Schedule: Review your portfolio at set times. I try to rebalance once a year. You don’t need to rebalance after every market movement, but regular check-ins can ensure your investments stay aligned with your goals.

2. Stick to Your Target Allocation: If you initially chose a 60/40 stock-to-bond ratio, rebalancing brings you back to that balance. If stocks have grown to make up 70% of your portfolio, you’d shift 10% back into bonds or other assets. The idea is to prevent overexposure to any single category.

3. Use Market Opportunities Wisely: During a downturn, rebalancing allows you to “buy low, sell high.” Reallocating funds from overperforming areas (often stocks) into underperforming ones (often bonds or cash equivalents) can capture value over time as markets recover.

Election Cycles and the Market: What History Tells Us

The general election is a couple weeks away! While election cycles bring uncertainty, they’re less impactful in the long-term market trajectory.

Historically, the S&P 500 has risen around 10% in the year following a U.S. presidential election, regardless of which party wins. The key takeaway? Election results can shake things up in the short term, but markets have generally trended upward over time. Focus on the long-term, not the short!

For a closer look at how markets have performed through various election cycles, check out S&P Global’s report on historical market trends during election years (source here). The data shows that, while market performance may differ slightly depending on election outcomes, the general direction is positive, with equities often recovering shortly after the dust settles.

Market fluctuations are normal, and they’re often amplified during times of political and economic change. The best course of action? Focus on your long-term goals, stick with your asset allocation, and don’t get swayed by the headlines.

Rebalancing is your tool for keeping things on track, helping you avoid overexposure and keep your portfolio aligned with your risk tolerance. And as history shows, regardless of election outcomes, the market tends to climb over the long run.

While we can’t tell you how to vote or rebalance your portfolio, you need to do at least one thing,…

VOTE!

Save On,

Chris