Video:Strengthen the core: Review your goals
Markets have been unsettled by war in the Middle East and uncertainty about when hydrocarbon flows will resume through the Strait of Hormuz. Additionally, bigger questions about AI disruption, government debt sustainability, and emergent credit stresses have weighed on investor sentiment this year. Nervous investors may feel compelled to hold outsized levels of liquidity. But those with excess cash should remind themselves of the big picture.
After a third consecutive year of 20%+ gains in global equities (MSCI All Country World Index) in 2025, investors who held and continue to hold too few equities have paid a price in terms of foregone performance.
Investors who avoided their home stock market may have missed out even more, given how Chinese equities (MSCI China Index), Japanese stocks (MSCI Japan), and European shares (MSCI EMU Index) all outperformed US equities, with gains of around 30%, 25%, and 25% respectively.
Stocks were not the only strong performers last year. Global bonds posted their best results since 2020, while gold climbed 63%, its largest annual gain since 1979.
Looking ahead, we maintain a constructive view on markets, and expect global equities to rise by end-2026 but with periodic bouts of volatility, as investors digest economic, technological, and geopolitical developments.
Investors should seek to strengthen their core portfolios in three ways, in our view.
1. Top up balanced portfolios across stocks, bonds, and alternatives. 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% in global shares, 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 should comprise 15-50% of assets, balanced across government bonds, credit, and private credit, with a focus on short-and medium-duration bonds and alignment to currency needs. Alternatives—including hedge funds, private markets, and infrastructure—can further enhance diversification and risk-adjusted returns for investors willing to tolerate risks.
2. Rebalance portfolios, especially after larger market moves. Big shifts between and within asset classes can mean portfolios may have drifted from their strategic allocations. CIO recommends rebalancing in a periodic and systematic way, with a disciplined plan and consistent schedule: sell relative winners, buy relative losers, and return to long-term asset allocations. This disciplined approach helps lock in gains, manage risk, and maintain exposure to future growth. Rebalancing may mean trimming outperforming equities and adding to lagging sectors or regions. It also provides an opportunity to review fixed income and alternative allocations, ensuring a balanced mix that reflects current market conditions and personal risk tolerance. Regular rebalancing is a core part of institutions’ professional portfolio management—and an activity self-directed investors can try to copy, especially in volatile environments, to help avoid emotional decision-making while staying 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 up to a mid-single-digit allocation to gold, which has historically proven to help insulate portfolios against geopolitical risks.
Return-seeking investors can diversify their stock exposure by seeking new regions, sectors, and industries through 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 fresh return sources, in particular hedge funds and private infrastructure. CIO suggests that 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.
