Ways to Strengthen a Portfolio in Unpredictable Markets
1. Regular stress testing
Portfolio stress testing ensures portfolios can adapt to various conditions without breaking, demonstrating how long-term plans could be impacted across different market situations. Investors should consider how much of a swing in value their current equity exposures would experience in a downturn, and whether that can be tolerated.
There’s much to be gained from regular proactive portfolio management. Additionally, last year’s gains give investors the opportunity to strategically reassess from a position of strength.
2. Rebalancing
Portfolios that were diversified a year ago may no longer be adequately diversified, prompting a reassessment of their current diversification status. A 60/40 stock-bond portfolio, if left unchanged since 2014, has likely shifted to a 76/24 mix today.
This shift could have significant consequences; in a downturn, the portfolio’s imbalanced allocation might lead to substantially magnified losses.
We regularly review portfolios for rebalancing potential so that the overall asset allocation continues to match risk tolerances and keeps investors on track toward their goals.
3. Diversification
Start with stock-bond diversification – a resilience fundamental that spreads risk because different asset classes tend to react to events differently, typically reducing portfolio volatility. But diversification goes one better, asking: Is there diversification within the stocks and bonds?
Is there international equity exposure, for example? What about dividend-paying equities? Different return drivers, across asset types and regions, can help manage volatility and potentially help in preserving capital
4. Optimizing your tax efficiency
After strong equity returns in 2023 and 2024, investors are most likely sitting on significant gains, which means a big tax bill once those gains are realized. Being tax smart matters now more than ever, and rocky markets are when tax-efficient strategies can be most valuable.
While mirroring an index, a tax-loss harvesting strategy can gather losses throughout the year that can offset gains elsewhere in your portfolio. The tax benefit generated helps preserve your wealth while capitalizing on volatility during uncertain times.
5. Discipline about staying fully invested
Discipline may not be easy. If the market sells off dramatically, that may well be the time when investors need to buy, even though it might feel uncomfortable. One challenge is simply that human nature has a fear reflex, leading people to sell at the worst times. That’s when discipline comes in. Similarly in a surging upmarket, a disciplined approach may mean prudently taking some gains.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “Ways to strengthen a portfolio—especially for unpredictable markets,” by Nancy Rooney, Managing Director, Global Head of Portfolio Advisory Group, and Serena DiBianco, Associate, J.P. Morgan Private Bank, Portfolio Advisory Group, March 28, 2025.
