Worried about volatility? Here’s where to put your money in uncertain times.

Donald Trump has also been stirring the pot with his tariffs and other pronouncements. Global markets have been in a tizzy ever since he assumed office. No one is sure where this trade war is going, which countries may benefit or lose, or whether the global economy will grow or enter a recession.

Investing during uncertain times 

These uncertainties are showing up in stock markets and other places. Gold has been going through the roof. Bond yields are still high, even though the Federal Reserve cut rates by 50 basis points in September 2024.

The question on investors’ lips is whether there is a type of portfolio than can help tide over these uncertain times. It is my endeavour to simplify this. My suggestion? Invest in just two mutual funds!

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Equity markets are volatile at the best of times. In these uncertain times, choppiness increases. While allocation to equities cannot be avoided, we can choose to diversify across asset classes. Also, it helps if asset levels can be adjusted appropriately, based on the gyrations of markets.

Dynamic asset allocation to the rescue

A dynamic asset allocation fund, such as a balanced advantage fund, is thus good choice. In this type of fund, the equity-debt allocation is based on what’s happening in stock markets. There are metrics to determine this, such as the price to earnings or price to book of the portfolio, which can then be rebalanced. The portfolio will also have options holdings to ensure equity taxation after a year of holding.

The second suggestion is a multi-asset fund, which has equity, debt, commodities, real estate, and so on. This provides diversification, and the portfolio is realigned at predetermined intervals, based on certain formulas or algorithms.

These two funds alone are good enough to help you weather the storm. 

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However, some investors may want a bit more nuance in their portfolios, with the ability to have specific exposure and control over the underlying assets. 

For those who want broad-based exposure to equity in their portfolio, an all-market index fund, based on Nifty 500, is a good choice. This encompasses a market capitalisation of over 92%.

Gold, silver and debt

Gold is also gaining salience in light of geopolitical uncertainties, war and conflict in various regions, and the changing global order and financial system. Because of all these factors, gold buying by central banks has shot up tremendously over the past few years.  Silver is another precious metal of note. Buying a gold and silver fund at this time would provide additional diversification and a hedge against volatile equities.

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A debt fund may not be a favoured investment option these days, especially after the tax advantage it enjoyed was removed. However, debt funds still have plenty of positives. They are well-diversified, unlike fixed deposits and bonds, which have exposure to a single entity. 

They are also professionally managed, tax-efficient, and offer unparalleled liquidity and flexibility. The suggested subcategories here are corporate bond funds, banking and PSU debt funds and/or dynamic bond funds.

Being invested in the right kind of fund is very important in turbulent times. These funds may be just what you need to navigate the ongoing uncertainty and emerge unscathed.

The author is managing director & principal officer at Ladder7 Wealth Planners and the author of the book If God Was Your Financial Planner.