Since 2025 market volatility stands as the expected standard while major indices show substantial fluctuations. Financial survival depends on the existence of a well-balanced investment portfolio during the extreme market fluctuations that resemble yo-yo movements.
Over the past several months market fluctuations have been extreme and investors who hold diversified portfolios enjoy better sleep compared to those who invested solely in soaring tech stocks.
What You’ll Discover in This Guide
- Understanding Market Volatility in 2025
- Building a Balanced Investment Portfolio
- Asset Classes for Your Portfolio
- Rebalancing During Volatile Times
- Common Mistakes to Avoid
Understanding Market Volatility in 2025
Market volatility has been intense lately. During the first quarter of 2025 the S&P 500 fell by 4.3%, which was followed by a more severe drop of nearly 10% throughout the first four trading days of April. The index showed a year-to-date decrease of 13.4% as of April 4 while having declined 17.4% from its high point in February.
The Russell 2000 and Nasdaq Composite indexes experienced greater declines with 17.8% and 19.3% losses respectively.
Several factors are driving this turbulence:
- The complete political control by one party across all government branches has introduced unpredictability regarding future policy changes.
- Stocks show more sensitivity to yield changes because of both the steepening yield curve and long-term rate increases.
- The latest tariff declarations alongside continuous inflationary trends are creating market instability.
- Global stability continues to face challenges from the persistent Ukraine-Russia conflict.
The labor market shows strength through continued job growth of 125,000 in January and 151,000 in February while unemployment rates remain unchanged at 4.1%.
The question many are asking about companies like Anduril—what is Anduril stock price doing amid this volatility?—reflects broader concerns about how different sectors are weathering this storm. While defense technology companies have maintained stability compared to consumer technology firms, market forces have affected every sector.
Building a Balanced Investment Portfolio
Creating a balanced portfolio requires diversification beyond just stocks and bonds. A balanced portfolio requires distributing assets across various asset classes that each react differently to market changes.
The composition of a balanced investment portfolio would appear as follows:
- Your stock allocation should range from 40 to 60 percent and include domestic large-cap stocks along with mid-cap and small-cap stocks and international stocks.
- Investors should allocate 20-30% of their portfolio to government bonds, municipal bonds, and corporate bonds that span diverse maturity periods.
- Allocate 10-15% of your portfolio to alternative investments which include real estate properties, various commodities or private equity funds.
- 5-10% Cash: For emergencies and opportunities
- Invest 5-10% of your portfolio in assets that offer protection against inflation through TIPS, I-Bonds and similar investment vehicles
Your age combined with your financial goals and risk tolerance determines the specific asset allocation breakdown. Someone who is 30 years old and saving for retirement should keep a larger portion of their portfolio in stocks while those approaching retirement should move towards bonds and cash.
Achieving proper diversification requires spreading investments across different asset classes and within each asset class.
Asset Classes That Should Be in Your Portfolio
We will examine the essential asset classes that should be included in your investment portfolio.
Stocks: Growth Potential with Volatility
Stocks offer long-term growth opportunities while exposing investors to market volatility. Include a mix of:
- Large-Cap Stocks represent mature companies that deliver dependable performance while frequently offering dividend payments
- Mid and small-cap stocks deliver substantial growth opportunities but carry elevated levels of risk.
- International stocks provide investors with opportunities to access multiple global economies and various foreign currencies.
- Value and Growth Styles represent distinct investment approaches which show optimal performance during specific market cycles.
Bonds: Stability and Income
Bonds stabilize investment portfolios by mitigating stock market volatility while delivering steady income. Create a portfolio that includes government bonds as well as municipal and corporate bonds with different maturity terms.
Alternative Investments
Real estate (via REITs), commodities and private equity for accredited investors deliver diversification benefits because their returns usually do not follow traditional market trends.
Cash and Cash Equivalents
Cash serves as both a protective measure and an investment opportunity during market volatility. High-yield savings accounts combined with money market funds and certificates of deposit provide safety while allowing quick access to funds when required.
Rebalancing Strategies During Volatile Times
During volatile periods portfolios require active management to maintain balance since they cannot maintain their balance by themselves. Implementing a rebalancing strategy allows you to keep your portfolio allocations aligned with your targets.
There are three main approaches:
- Calendar Rebalancing: Rebalance your portfolio according to a predetermined schedule which can be quarterly, semi-annually, or annually.
- Percentage-of-Portfolio Rebalancing: Implement rebalancing procedures whenever an asset class moves beyond a set percentage away from its target allocation.
- Tactical Rebalancing: Deliberately adjust weights based on market conditions
In periods of extreme market volatility like we experienced in early 2025 you may need to rebalance your portfolio more often. Investors should rebalance portfolios by allocating new contributions instead of selling their existing holdings to reduce transaction fees and tax burdens.
Common Mistakes to Avoid
Even seasoned investors succumb to emotional decision-making during market volatility.
Mistake #1: Panic Selling
Investors who choose to sell their stocks after the market suffers a steep decline will confirm their losses. Only when you sell do paper losses turn into actual financial losses.
Mistake #2: Trying to Time the Market
Forecasting precise market peaks and troughs remains an exceptionally challenging task. Even professional traders get this wrong regularly.
Mistake #3: Overreacting to News Headlines
The purpose of financial news is to generate clicks rather than support informed investment choices.
Mistake #4: Chasing Performance
Resist the urge to shift your well-developed portfolio towards recently successful investments.
Putting Your Portfolio Into Action
Building your balanced portfolio represents just one part of the challenge while maintaining it through turbulent times makes up the remaining part.
- Document Your Plan: Record your intended asset distributions and strategy for rebalancing.
- Automate Where Possible: Set up automatic investments
- Limit News Consumption: You should review your portfolio and financial news only once a week.
- Focus on What You Control: Market dynamics are beyond your control but you can manage your expenses and taxes as well as your personal actions.
Achieving balance in a portfolio means optimizing returns to suit your acceptable risk threshold instead of maximizing potential gains. In unstable markets risk management becomes an indispensable practice.
The Tax Implications of Rebalancing
Evaluate how selling appreciated assets during rebalancing will affect your taxes. Some tax-smart strategies include:
- Conduct the majority of your rebalancing activities within tax-advantaged accounts like IRAs and 401(k)s.
- Implement tax-loss harvesting by selling losing investments during market downturns to counterbalance gains from other areas.
- Rebalance your portfolio by using new contributions instead of selling your current investments.
Investment decisions should not be based on taxes but taxes should guide your implementation strategy.
Wrapping Up Your Volatility Strategy
The market’s volatility will remain in 2025 yet a well-diversified investment portfolio will help you steer through these turbulent times. Investors who sleep soundly aren’t those who attempt to forecast market trends but rather those who maintain well-diversified portfolios that match their financial objectives.
After reviewing and adjusting your allocation, maintaining your investment path is essential despite market volatility. The key to building wealth lies not in timing the market movements but in maintaining investments over time.
A balanced portfolio helps you maintain your investment positions through market turbulence and in uncertain times your ability to stay resilient becomes your most valuable asset.
