Rosita: The Stick Portfolio
Rosita is more cautious. She builds a sturdier portfolio, reading financial news and gaining a basic understanding of the macroeconomic picture. Because US stocks have performed well recently, she decides to devote a large portion of her portfolio to an ETF that tracks a US large-cap stock index. She figures this provides exposure to hundreds of companies instead of just a few trendsetters.

For a while, this strategy works. As the US market soars, so does Rosita’s portfolio. But while her portfolio had some well-known names and followed the market’s upward trajectory, it lacked thorough diversification and a clear plan for risk.

So, when volatility rears its ugly head, Rosita doesn’t immediately feel rattled. But as the market grows increasingly uncertain—driven by ongoing trade tensions, a wavering job market, and interest-rate uncertainty—her fear grows too strong.

Worried about losing even more, Rosita panics and sells her investments at a loss to prevent any further damage. Her relief is short-lived, however, because she then misses out on the rebound that follows a few months later.

Lesson: A decent plan is better than none, but without discipline and risk management, even sturdy sticks (and portfolios) can snap. This may make it difficult to stay invested long enough to benefit from a market recovery.

No matter how you approach investing, you’ll inevitably face market volatility.

Wilbur: The Brick Portfolio
Wilbur takes a more deliberate approach. Most importantly, he brings in help: an experienced financial professional. Together, Wilbur and his financial professional discuss long-term goals and risk tolerance, then construct a diversified portfolio that’s designed to provide long-term returns and balance resilience with growth.

This brick portfolio includes a mix of domestic and international stocks, as well as some fixed-income assets. The portfolio offers exposure to a wide variety of stocks, including the companies making headlines, but also avoids concentrating in overheated sectors.
In this case, when the wolf comes—blowing with uncertainty over trade, puffing with inflation, and questioning if the AI boom is over—the brick portfolio wobbles and suffers some losses. But its diversified foundation helps Wilbur’s portfolio remain resilient overall, and though he keeps a wary eye on his portfolio, he feels confident enough to stay invested and wait for the market to recover.

Lesson: Though diversification does not ensure a profit or protect against a loss in a declining market, a solid and diversified plan that’s grounded in fundamentals and aligned with risk tolerances can help investors withstand even extended bouts of volatility.

The Benefits of Preparing Today
Markets have soared on tech innovation and the ongoing strength of the economy. But the wolf of volatility has visited, driven by trade war threats and geopolitical unrest, leaving investors uncertain about whether tech innovation can sustain growth. So, while markets have continued to set new records, the path upward hasn’t been a smooth one—and future performance is never guaranteed.

The takeaway is that no matter how you approach investing, you’ll inevitably face market volatility. If you’re not prepared for shifting markets, like Gordy and Rosita, volatility can collapse your hard work in quick fashion. But if you take a little extra effort to prepare a diversified portfolio from the start, like Wilbur and his brick portfolio, you can be better prepared for the challenges the market blows your way.