Investing Strategies for Market Uncertainty

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Key takeaways:

• Diversification supports long-term outcomes. Spreading investments across asset classes and regions can help smooth returns over time.
• Volatility does not equal long-term risk. Short-term market swings do not necessarily undermine long-term outcomes.
• Discipline supports long-term outcomes. Maintaining a long-term approach through volatility has been associated with stronger results.

A long-term approach to investing through market outcomes

Markets rise and fall unpredictably over time, which can make periods of volatility feel unsettling for investors. But one lesson has remained consistent throughout decades of market history: disciplined investing strategies and a long-term perspective may lead to stronger outcomes. One of the most important concepts investors should understand is what portfolio diversification is: spreading investments across different asset classes to help manage risk and support long-term growth through changing market conditions.

The instinct to move to cash and wait for calmer conditions is understandable, but doing so may be costly for long-term investors, says Thomas Jalics, chief investment strategist at Fifth Third Private Bank. Jalics has spent three decades helping clients navigate everything from the dot-com bust to the 2008 financial crisis, and throughout these ups and downs, he has found that the most important factor is the amount of time spent in the market, not timing the market.

"Over the last 35 years, the S&P 500 index has averaged 11% annualized returns, but if you missed the 10 best days, that return goes down to about 8%," he notes. "Since you don’t know when those great days are going to happen, you should invest for years and decades rather than waiting for the perfect moment."

For those in need of a high-net-worth investment strategy, it may be beneficial to spread these investments across a set period rather than committing everything at once. This approach can help take the pressure off any single decision.

Market volatility vs. investment risk: what's the difference?

Periods of market volatility often prompt investors to reassess their strategy, making it important to distinguish between volatility and risk. While sometimes used interchangeably, they have different implications for long-term planning.

High volatility occurs when security prices fluctuate up and down in the short term, whereas risk can have several meanings:

• Market risk, when the entire stock market declines because of economic factors
• Industry risk, when an entire industry sector falls out of favor
• Company risk, when an individual firm has problems such as poor management or new competition

High volatility does not always mean high risk as investing in a highly volatile stock can be profitable over the long term.

Even so, declines in portfolio value can be unsettling for investors. "Advisors often emphasize the importance of returning to a carefully constructed investment plan aligned with long-term needs and goals," Jalics points out.

This process typically involves reviewing the original investment policy statement, checking whether anything material has changed in the client’s life and reassessing whether the existing allocation still fits their goals, timeline and risk tolerance.

Within this context, bear markets, Jalics notes, tend to be shorter than people expect, lasting eight months on average, with stock declines in the 15% to 25% range, typically followed by sharp recoveries. Investors who exit during the downturn often miss the subsequent recovery.

Why portfolio diversification matters during market uncertainty

Effective investment portfolio management often relies on owning a mix of assets that respond differently to changing economic conditions. As part of many long-term wealth management strategies, stocks and bonds do not always move together, while real assets such as real estate and commodities can help provide inflation protection. Short-term Treasury bills and bonds have also historically held up during periods of uncertainty. In addition, alternative investments—including private credit and private real estate—may help reduce overall portfolio volatility when held over longer time horizons.

Since investors cannot time the markets, the goal isn’t to pick the best-performing asset class at any given moment. Rather, the goal is to build a diversified portfolio designed to smooth out returns over time, including assets with low correlation so they do not move in lockstep.

The relevance of the traditional 60/40 portfolio (60% equities, 40% bonds and cash) continues to be evaluated in today’s market. Jalics notes that its role remains intact. "The demise of the 60/40 portfolio has been greatly exaggerated," he adds. Over the last 25 years, a 60/40 allocation has been positive for 73% of that time, even through the Great Recession of 2008-2010 and an ensuing decade of near-zero interest rates. "The portfolio’s resilience," he continues, "comes from what critics overlook: Bonds and stocks often don’t move together, and that partial independence is precisely the point of holding both."

Investing at market highs: What history suggests

It feels counter-intuitive, but historical data shows that periods when markets reach new highs have often been associated with positive returns over one-, three-, five- and 10-year periods.

Market highs often reflect real optimism about future earnings and cash flows, not irrational exuberance. Waiting for a pullback can introduce opportunity costs, particularly when gains compound over years. "There’s this beautiful thing called compound interest that you can’t make up over time," Jalics points out. Investors who have historically achieved stronger long-term results are the ones with a clear plan, a diversified portfolio and the discipline to stay invested when it’s uncomfortable. "Unless you believe the world is ending, it’s been a poor wager to bet against the world persisting," Jalics says wryly.

While some in the industry suggest making the overall portfolio more conservative as the high-net-worth investor grows older, Jalics argues the opposite case. "It’s been riskier to not have growth assets in a portfolio because you are now hamstringing the prospective returns," he explains. "Even in retirement, you need a growth component in your portfolio because you want your purchasing power to beat inflation." Bonds and cash can’t provide sufficient protection against inflation—for that, you need a diversified portfolio that includes growth assets such as equities and alternatives, and real assets such as commodities and real estate.

How an investment advisor can help during market volatility

For high-net-worth investors, a fully diversified portfolio may include not only stocks and bonds but also hedge funds and other alternative investments such as real estate, private equity and private credit. Trying to assess each of these asset classes over thousands of potential investments can be a daunting task for an individual investor, which is why having an experienced investment advisor can make a critical difference.

Financial advisors are fiduciaries and are required by law to put the interests of their clients first. They may help protect clients from emotional decisions that can hurt returns. Historical data suggests that annual returns can range between 2% and 5% higher when retail investors get guidance from qualified investment managers.

Navigating market uncertainty has never been simple, but the principles that guide successful investors have remained consistent over time. Whether markets are climbing to new highs or retreating, a disciplined investment strategy centered on staying invested, broad diversification and resisting the impulse to act on short-term concerns can help support long-term goals. Missing even a handful of the market’s best days can erode long-term returns. A well-diversified portfolio developed with the guidance of a financial advisor for investing is designed to help investors navigate periods of volatility and stay focused on their long-term objectives, even when market conditions feel uncertain.

Connect with your Fifth Third Private Bank advisor to ensure your portfolio is balanced and learn more about how to stay resilient during periods of market volatility.