Portfolio Resilience
Building a resilient portfolio
Learn how strengthening portfolio resilience can help you build on market gains and meet your wealth goals under a range of economic outcomes.
Grace Peters, Global Head of Investment Strategy
Jacob Manoukian, U.S. Head of Investment Strategy
Published Mar 12, 2025
Jacob Manoukian, U.S. Head of Investment Strategy
Published Mar 12, 2025
By any measure the gains are impressive. Over the past year, U.S. household net worth rose 11% to nearly USD 160 trillion.1 Since 2019, the total jumped 42%, with a third of the increase driven by market gains. In the eurozone, household wealth grew to an estimated 60 trillion euros, up from less than 50 trillion euros pre-pandemic.
As 2025 gets underway, we see decent momentum from consumers and businesses, fueling our optimism that investors can build on the past year’s gains.
11%
increase in U.S. household net worth to nearly USD 160 trillion in 2024
42%
overall increase since 2019
But it’s a tricky juncture, as investors were reminded by flurries of stock market sell-offs in late January and February.
U.S. Household Net Worth Surges Amid Market Gains
Growth in asset categories from 2019 to Q3 2024 (in Trillions USD)
Source: Federal Reserve. Data as of September 30, 2024.
Still-elevated equity valuations, tight credit spreads and concentrated positioning, combined with ongoing geopolitical tensions and rising policy uncertainty (how will various crosscurrents impact inflation and growth?), underscore the need for portfolio resilience. As we have learned over multiple cycles, a resilient portfolio is one that is positioned to meet your wealth goals under a range of economic and market outcomes.
As always, some factors fall within, and others lie beyond, your control. It’s important to distinguish between the two.
Prepare, reassess and adjust as needed.
Seize what’s within your control: The annual wealth check
—
What’s in your control? First and foremost, establishing and revisiting a goals-based wealth plan. Working with your advisor, you can categorize your wealth in four buckets: liquidity (sufficient cash on hand); lifestyle (for lifetime spending); legacy (for heirs and beneficiaries); and perpetual growth (capital growth in perpetuity).
Portfolio resilience is especially critical in the lifestyle bucket. To generate sufficient income for your lifetime’s spending requires a portfolio able to withstand many business and market cycles. Armed with a resilient portfolio, you can have greater confidence that you will meet your wealth goals.
Among the questions to consider in an annual “wealth check” with your advisor:
- Do you have a solid wealth plan?
- Have you drifted from your plan’s strategic asset allocation and thus need to rebalance your holdings? A common example of drift: A portfolio invested 60% in equities and 40% in fixed income at the start of 2020 is more like a 75%/25% mix today.
- Are there concentrated positions in your portfolio? If so, it may be prudent to take some gains and reduce the level of concentration.
- Are you prepared to endure volatility?
Of course, many factors impacting your wealth plan fall beyond your control.
Macroeconomic forces–in particular, the mix of growth and inflation–help determine financial asset pricing. Here we think the trajectory of the new Trump Administration policy will be key. Our base case view of global GDP growth anticipates solid growth in the United States, no recession across developed economies and a still-unbalanced economy in China.
On the inflation front, tariffs could prove inflationary, as could new U.S. immigration policy if it significantly constrains the U.S. labor supply. We expect inflationary pressures will likely be contained. But a resilient portfolio manages both upside and downside risks to growth and inflation.
What’s more, we do anticipate a pickup in volatility, especially equity volatility. Keep in mind that the past two years have been relatively calm for the U.S. market. And yet, S&P 500 drawdowns have averaged 14% over the past 45 years, even if the market ends the year up 79% of the time.2 This signals a further need for greater portfolio resilience.
We've seen it before: Don't let volatility derail your plans
S&P 500 intra-year declines and calendar year returns, %
Sources: FactSet, S&P. Returns are based on price index only. Intra-year drops refer to the largest market drops from a peak to a trough during the year. Returns shown are calendar year returns from 1980 to present year. Data as of March 14, 2023. Past performance is not indicative of future results. It is not possible to invest directly in an index.
How to strengthen your portfolio’s resilience
What specific actions can you take when seeking to enhance your own portfolio’s resilience?
—
1. Build a resilient core
You’ll want to be sure that your core investments—equities, fixed income and diversified alternatives where possible—are invested globally and aimed at achieving consistent performance. Identify specific assets to help mitigate tail risks. This might include gold for geopolitical risk, core infrastructure for inflation risk and structured notes for a wide range of outcomes. Consider a tax-aware approach to boost your after-tax returns.
Equities can serve as the growth driver of your portfolio. We anticipate U.S. stocks to return around 7% this year, driven by earnings per share growth of around 10%. The U.S. exceptionalism theme will continue, we believe, but we see diversification benefits by geography, sector and style.
—
2. Add downside mitigation
To mitigate on the downside against an equity sell-off sparked by disappointing growth, core fixed income (investment grade sovereign, municipal and corporate debt) continues to play a vital role as a portfolio diversifier. In the current rate environment, it also delivers attractive yields. But while bonds can help diversify against growth shocks, they cannot hedge against inflation shocks.
Consider using tools such as options to change the risk and return profile of underlying assets. These strategies can potentially provide downside preservation while enhancing some upside potential. Historically, we have found that equity-linked structured notes have delivered two-thirds of the return of broad equity markets while also—and this is key—delivering positive returns in down equity markets.
—
3. Manage inflation risks
Many alternative assets, including infrastructure, real estate and commodities, have the potential to help mitigate inflation risk. They also offer the added benefits of typically exhibiting low correlation to stocks and bonds. In recent months, many clients have added infrastructure and gold to their holdings.
Ready to discuss building portfolio resiliency?
2025: A good year for risk assets
—
Portfolio managers sometimes talk about return per unit of risk, or risk-adjusted returns—essentially, what’s the bang for your buck? A resilient portfolio aims to deliver strong risk-adjusted returns. To bolster your own portfolio’s resilience and strengthen your risk-adjusted returns, you may aim for higher returns and/or lower volatility.
We are optimistic about market returns in 2025. We think it will be a good (although not a great) year for risk assets such as stocks and high yield bonds.
But recent market sell-offs remind us that market volatility is normal. As you think through your investing decisions, be psychologically prepared for more market volatility. It can help you stay the course.
We are optimistic about market returns in 2025. We think it will be a good (although not a great) year for risk assets such as stocks and high yield bonds.
But recent market sell-offs remind us that market volatility is normal. As you think through your investing decisions, be psychologically prepared for more market volatility. It can help you stay the course.
We can help: Time for a wealth check
—
When you make, or reassess, your wealth plan, ask what you want to achieve with your money, and consider how your goals might have changed. Do you have a specific target? How could segmenting your pools of wealth give you more clarity on your investment needs while helping you get invested and stay invested in the right assets for your long-term objectives?
As we’ve discussed, aim to deepen your portfolio’s resilience and rebalance your asset base where needed. Whatever markets have in store, a resilient portfolio can give you greater confidence that your investment decisions align with your intentions.
As we’ve discussed, aim to deepen your portfolio’s resilience and rebalance your asset base where needed. Whatever markets have in store, a resilient portfolio can give you greater confidence that your investment decisions align with your intentions.
5 ways to build a resilient portfolio
To preserve the past year's market gains—and prepare for unexpected shocks in 2025—here's how you can consider building a resilient portfolio.
Read here
Outlook 2025: The Alchemists
Explore how the Trump administration's distinct policy blend is shaping market dynamics and investor strategies in this presentation by Michael Cembalest.
Read here
Investing in the themes of the future
Why we think security and infrastructure have transformative potential and could play a role in your long-term growth strategy.
Read here
Important Information
