A diversified defence against volatility

31 March 2026

Diversification means spreading your money across different investments so you’re not relying too heavily on any single one. This helps reduce the impact if one investment performs badly.

If we could reliably predict the best-performing investment over the next 3, 6, or 12 months, we’d just buy that. But investing is full of unknowns, and even well-researched choices can be hit by unexpected events. Recently, markets have faced recession fears, stubborn inflation, trade tensions, rising government debt, sudden policy changes, and geopolitical conflict. With more bumps in the road, investors are looking for ways to make portfolios steadier - and good diversifiers can help.

Start by avoiding over-concentration in a single stock. Company profits can swing, and owning several stocks can reduce the impact of bad news from any one firm.

Next, diversify across sectors – for example, energy, healthcare, and technology - so you’re not tied to just one part of the economy, and then add geographical diversification by investing in different countries, which can reduce risk and open up more opportunities. Finally, if appropriate for you, diversify beyond just holding shares by including other asset classes such as bonds, gold, hedge funds, and more.

One approach to diversification is to build a focused but deliberately multi-themed portfolio of high-quality companies shaping tomorrow’s economy. Compared with traditional global funds or narrow single-theme strategies, this can offer three benefits:

1) Lower concentration risk
A portfolio of around 40–60 shares can hold your strongest ideas while spreading risk across different areas. This way, results depend more on your stock choices than on a few giant index names.

2) Broader global exposure
Fast-growing companies can come from any country or sector. Investing across themes and regions can make your portfolio more resilient.

3) Flexibility as markets change
If one theme struggles, another may perform better, therefore helping your portfolio adapt as market performance fluctuates.

A common method of diversifying is to hold a wider mix of shares and add bonds and other assets. Today, this is easier with products such as Exchange Traded Funds (ETFs), which can provide simple, low-cost access to assets like government bonds, gold, and infrastructure. For an even simpler option, multi-asset funds combine several diversifiers in one professionally managed portfolio, often available in different risk levels and currencies.

Even everyday holdings, such as pensions, ISAs, property, and cash savings, can also form a diversified mix. The fundamental principle across all methods being that when one part of the mix falls in value, another can rise to help smooth out the changes.

Diversification should reflect your age, goals, risk tolerance, and preferences. Many older investors prioritise income and stability, which can mean more bonds and cash. Investors willing to take more risk may lean more towards shares, emerging markets, and investing beyond their home country.

Concentrated portfolios can sometimes outperform, but that often doesn’t last. In the long run, diversification tends to support steadier performance across different market conditions and helps you capture tomorrow’s winners wherever they appear.

The most important thing to remember is that diversification helps you manage uncertainty by reducing reliance on any single investment while keeping you open to opportunities across markets and asset types.