Resilient economic growth, robust corporate earnings, and higher starting yields on bonds all speak to staying invested for income and capital appreciation potential. But equally, the market environment has become more challenging, whether due to geopolitical tensions limiting energy supply and stoking inflation fears, heavily concentrated stock markets dependent on AI returns, or fiscal and monetary policy uncertainties driving volatility in government bond markets.
CIO believes this market environment favors investing rather than sitting on the sidelines. 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. And high-quality government bond yields should fall into next year as growth and inflation decelerate.
But with uncertainty favoring flexibility and a need to think in terms of market scenarios, we believe it is important to focus on three, key principles to build more robust portfolios for the remainder of 2026 and beyond:
First, maintain a balanced portfolio. A solid core is key for long-term success. CIO likes putting 30-70% of assets in stocks, with at least half in US shares and at least 20% in global markets, including Europe and emerging economies. Up to 30% can go to growth themes like AI, Power and resources, and Longevity. Fixed income—such as government and corporate bonds—can make up 15-50% of assets. Aim for a mix that matches currency needs. Alternatives like hedge funds, private markets, and infrastructure can add more diversification and help manage risk.
Second, rebalance. Big market moves can shift portfolios away from targets. Rebalancing means trimming outperformers and adding to underperformers. This can help lock in gains, control risk, and keep investors on track. Professional managers do this regularly, and individual investors can benefit from the same discipline—especially in volatile times.
For investors holding concentrated stock positions, now may be an opportune time to review how such positions align with financial plans and make a plan to reallocate in a disciplined way. Approaches can include setting mental rules to reduce positions when certain performance thresholds are met or at regular intervals. It may be worth looking at structured strategies that enable investors to gradually reduce their equity holdings, reducing emotional biases and executing sales in a systematic way. Investors can then identity gaps in their asset class, regional, and sector allocations and reinvest proceeds into fresh sources of potential yield, growth, or portfolio protection.
Investors should also be aware of the particular features of their home equity market and seek to correct any biases or concentration risks to diversify their holdings.
The Swiss stock market, for example, has a number of distinctive sector and single-security biases, especially toward health care stocks. By contrast, local exposure to the energy and materials sectors (key components of our Power and resources TRIO) are low. Similarly, direct Eurozone stock exposure to the whole AI value chain is low compared to key US and North Asian equity benchmarks, so overallocating to local euro area markets may risk missing out on transformational innovation.
Equally, investors may want to explore whether they are sufficiently diversified. In risk-off periods, for example, more growth-sensitive corners of global credit markets (high yield debt, emerging market debt, and leveraged loans) tend to behave more like equities than bonds. Having sufficient exposure to portfolio diversifies for alternate market scenarios, including real assets should inflation remain sticky, could be a prudent course of action.
Third, look for ways to protect and grow wealth. Managing risk is as important as choosing the right assets.
The cautious can reduce some stock exposure and add capital preservation strategies or gold, which has historically been a good long-term hedge. The income seeker can complement a core allocation to high-quality government and investment grade bonds with satellite investments in diversified fixed income approaches, high yield debt, emerging market bonds, equity income strategies, or structured strategies. And the more adventurous can consider tactical equity ideas or structured solutions that limit losses or boost yield.
Holding satellite investments may offer investors greater nimbleness and agility to navigate fast-moving markets, while preserving a stable core portfolio throughout the ups and downs of the market cycle. Reviewing the overall allocation in the round, however, is still important to maximize the chances of meeting long-run objectives.
The far-sighted can also look at alternative investments like hedge funds, private equity, private credit, and infrastructure for new sources of return. We like hedge funds (including regional opportunities focused on Asian markets), private infrastructure, and private market vehicles that generate income from royalties. 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.
However, investors must be able and willing to bear the unique risks of investing in alternative assets, including but not limited to illiquidity.
Last, investors should acknowledge that not all cash serves the same purpose. Some cash is needed tomorrow, some in a few years' time, and some may not be required for many years at all. By matching liquidity to spending horizons, investors can potentially improve returns without compromising flexibility.
A practical framework is to divide liquidity into three distinct buckets.
The first bucket is everyday cash, covering the next 12 months of spending needs, emergency reserves, tax payments, and other near-term expenses. Here, accessibility and security matter most. Current accounts, savings accounts, and money-market style approaches can all play a role.
The second bucket is core liquidity, covering money expected to be used within one to three years. This might include a property purchase, education funding, or planned lifestyle expenditure. Fixed-term deposits remain highly relevant in this category, but they need not be the only option. Certificates of deposit, Treasury bills, short-dated bonds, and short-duration investment grade bond funds can all help balance liquidity and return. Bond laddering strategies may also help reduce the risk of having all capital reinvested at the same point in the interest-rate cycle.
The third bucket is investment cash, covering money unlikely to be needed for three to five years. For this capital, investors may be able to take advantage of current elevated bond yields by locking them in for longer. Medium-term government bonds and investment grade corporate bonds could provide attractive income while also offering diversification benefits. Importantly, if economic growth weakens and yields decline, high-quality bonds may also benefit from capital appreciation.
Investing rather than cash management becomes a more viable option for money that is unlikely to be needed for more than five years. While high cash rates can make deposits look difficult to beat, history suggests investors are often rewarded for putting excess cash to work.
