Investors who’ve stayed on the sidelines this year in the face of geopolitical uncertainty, oil supply shocks, and AI disruption risks are missing out.
The US S&P 500 and Nasdaq indexes have recently notched all-time highs, while the Euro Stoxx 600 is trading not far below its peak. Markets closely linked to the AI value chain, such as South Korea’s Kospi, have gained nearly 90% this year.
It’s true that bond yields have been choppier and, in some instances, hit post-2007 highs on fears that higher-for-longer oil prices will force central banks to raise rates. Gold’s insurance value at the height of the Iran war was marred by expectations that higher inflation would lead to higher interest rates, with the metal around 13% below its 2026 highs.
And investors outside the US may still be concerned about whether European central bankers will have to raise borrowing costs to check inflation, at the cost of growth, as well as the ongoing war in Ukraine.
Nevertheless, benign macro forces, strong first-quarter corporate earnings momentum, and below-average positioning all speak to further gains for global stocks by year-end. But the ride may be bumpy, suggesting a need for nimbleness and diversification.
Cashed-out investors nervous about putting money to work at all-time highs have better alternatives to waiting for a pullback, in our view. Here are three ways to strengthen core portfolios and overcome all-time-high anxieties:
1. Top up balanced portfolios across stocks, bonds, and alternatives. We believe a robust core portfolio is the foundation for long-term success. CIO suggests allocating 30-70% of assets to equities, with at least half in US stocks and at least 20% global, including Europe and emerging markets. Up to 30% can be dedicated to structural growth themes such as AI, Power and resources, and Longevity. Fixed income could comprise 15-50% of assets, balanced across government bonds and credit, with a five- to seven-year duration and alignment to currency needs. Alternatives—including hedge funds, private markets, and infrastructure—can further enhance diversification and risk-adjusted returns.
2. Rebalance portfolios. Large market moves over the year to date may have shifted portfolios away from target allocations. It may be prudent to rebalance, reducing relative outperformers, and adding to relative underperformers, to return to long-term asset allocations. This disciplined approach may help lock in gains, manage risk, and maintain exposure to future growth. Regular rebalancing is a core part of professional portfolio management—and an activity self-directed investors can try to copy, especially in volatile environments, to help avoid emotional decision-making and stay focused on long-term goals.
3. Enhance core portfolios with wealth preservation and tactical ideas. Strengthening the core isn’t just about asset allocation—it’s also about managing risks and seeking new opportunities. Risk-averse investors can hedge market risks by substituting some equity exposure with capital preservation strategies or adding gold exposure, which has proven to be an effective longer-term hedge against market stress and systemic risks. Return-seeking investors can pursue tactical equity opportunities, including structured strategies that offer limited exposure to losses or enhanced yield while waiting to “buy on dips.” Long-term investors can consider alternative investments as diversifiers and potential sources of fresh returns, including private equity, private credit, and infrastructure. CIO suggests that EMEA investors with an “endowment” style may benefit from allocating up to 20-40% to alternatives, with careful manager selection and effective diversification across strategies. This approach can improve portfolio resilience and adaptability to changing market conditions. Investors considering alternative assets must be mindful of risks including illiquidity and lower transparency.
Holding excess cash may have felt prudent at the height of the Iran conflict. Market overhangs persist, including uncertainty about oil supply resumptions, the extent of stress in credit markets, and the sustainability of the AI trade. But recent market action has also shone a spotlight on the opportunity cost of not being invested. Now is the time to strengthen core portfolios.
