Managing Market Volatility: Diversification, Discipline, and Long-Term Investing
By Joseph Guidish, MSF, CAIA, Director of Alternatives and Portfolio Manager at Merit Financial Advisors
A 2026 PwC Market Volatility study found that 49% of baby boomers are delaying major financial decisions because of economic uncertainty. Delaying important financial decisions can cause investors to miss valuable opportunities, making it important to put periods of uncertainty into perspective.
Markets do not move in a straight line. Interest-rate changes, inflation reports, employment data, corporate earnings, and geopolitical events can all contribute to short-term market swings. Volatility is an inevitable part of investing, but it rarely requires abandoning a well-designed financial plan.
Recent periods of volatility have demonstrated how quickly investors can become focused on short-term risks, even when their long-term objectives remain unchanged. When markets become unsettled, investors may feel pressure to react quickly. However, decisions driven by fear or short-term headlines can move a portfolio away from its intended purpose. A more disciplined approach is to remain focused on long-term goals, maintain appropriate diversification, and understand how each investment fits within the broader portfolio.
What are the different types of investor classifications?
Investor classifications help determine which public and private investments an individual may access. Most investors participate through public markets using stocks, bonds, mutual funds, and exchange-traded funds.
Accredited investors meet certain financial or professional criteria, allowing them to access some private investment opportunities. Qualified purchasers meet higher investment thresholds and generally have access to an even broader range of private-market strategies.
Historically, many private-market investments were available only to accredited investors and qualified purchasers. Today, investment structures are evolving, creating additional ways for general investors to gain exposure to certain private-market asset classes.
However, access alone does not make an investment appropriate. Investors should evaluate how any investment aligns with their goals, risk tolerance, time horizon, and liquidity needs before allocating capital.
How does diversification evolve as wealth grows?
Diversification may evolve as an investor’s wealth, goals, time horizon, and liquidity needs become more complex. The objective is not simply to own more investments. It is to combine assets that may respond differently to changing market and economic conditions.
Many investors begin with a traditional 60/40 allocation, with 60% invested in stocks and 40% in bonds. As investors accumulate wealth and qualify for additional investment opportunities, they may expand their portfolios to include private-market and alternative investments.
For example, some accredited investors and qualified purchasers may transition toward a 50/30/20 allocation, with 50% invested in stocks, 30% in bonds, and 20% in alternative investments. The alternatives allocation could include areas such as hedge funds, private equity, private credit, or private real assets.
These allocations are examples rather than recommendations. The appropriate portfolio structure depends on each investor’s circumstances, financial objectives, risk tolerance, and ability to accept reduced liquidity.
The broader principle remains the same at every wealth level: diversification should support the investor’s long-term plan. Access to a wider range of investments can provide additional portfolio-building tools, but complexity should not replace a clear investment purpose.
What are the newest diversification trends?
One of the most significant developments in investing is the increasing availability of private-market exposure through structures that make these investments accessible to a broader audience.
Interval funds have expanded access to private-market investments through structures developed by private asset managers. Meanwhile, partnerships between public and private asset managers are creating ETFs that blend public and private credit exposures, giving investors access to a broader range of income-producing assets through a familiar investment vehicle.
While greater access can be beneficial, investors must understand the underlying investments and liquidity features. Private-market investments often involve less frequent valuations, limited redemption opportunities, longer investment horizons, and more complex structures than traditional public-market investments.
New or exclusive opportunities should not be added to a portfolio simply because they are available. Every investment should serve a defined purpose, support the investor’s long-term objectives, and align with the investor’s need for liquidity.
The bottom line: stay diversified and focused on the long term
The most common mistake during periods of volatility is allowing short-term emotions to override a long-term investment strategy. Market fluctuations are inevitable, but reacting to headlines or temporary declines can have a lasting impact on long-term outcomes.
A well-diversified portfolio, supported by appropriate liquidity and aligned with an investor’s goals, can help navigate changing market conditions. Whether investing exclusively in public markets or incorporating private-market exposure, investors should understand what they own, why they own it, and how it fits within their broader financial plan.
If you are unsure whether your portfolio is prepared for the next period of market volatility, consider speaking with a financial advisor about diversification, liquidity, and risk. Merit Financial Advisors offers complimentary consultations to help bring structure and confidence to your financial life. Let’s start the conversation.