Page 26 - BusinessWest July 7, 2025

“Asset allocation is a fundamental
component in building an
investment portfolio. By
constructing a diversified
portfolio that encompasses
various asset classes such as
stocks, bonds, and cash, you can
inherently reduce risk and volatility, while still
acquiring desirable returns.”
Navigating Market Volatility
Strategic Asset Allocation Is Key to Protecting a Portfolio
BY DAVID MODZELEWSKI
In April 2025, a significant policy shift left investors unsettled as the S&P
500 tumbled about 12% in a single week. With the new administra-
tion in office, we have seen heightened volatility, and more may follow.
In times like these, many investors ask themselves, how do I protect my
portfolio?
The answer lies in strategic asset allocation. By working with a trusted
financial advisor who acts in your best interest, you can build a portfolio
designed to guide you through uncertain times like these.
Asset allocation is a fundamental component in building an investment
portfolio. By constructing a diversified portfolio that encompasses various
asset classes such as stocks, bonds, and cash, you can inherently reduce
risk and volatility, while still acquiring desirable returns.
During periods of volatility, human nature often responds impulsively
to market flux; however, maintaining discipline is key. For most investors,
modifying your allocation during a declining market can have a negative
impact on your assets. If a market downturn prompts you to alter your
allocation, it may indicate that your portfolio was not properly allocated to
begin with.
Successful investing begins with building a portfolio tailored to your
risk tolerance and short-term needs. This allows for investors to weather
downturns in the market while enabling them to take advantage of the
subsequent market growth.
Many variables go into deciding the proper asset allocation for your
portfolio. To determine these variables, a financial advisor will ask in-
depth personal questions to gain a better understanding of your financial
situation and goals.
Asset allocation must be tailored to meet your needs — there is no one-
size-fits-all answer. The better your advisor understands you, the more
effectively they can personalize your asset allocation. Below are three fac-
tors used to influence the decision behind allocating assets.
Shorter horizons call for a more conservative approach to protect capital.
Example: Consider an investor nearing retirement who will soon take
withdrawals from their investments for living expenses. This is a massive
life transition for the investor. Investors may now think they are retiring
and that they should shift all of their funds into a fully conservative invest-
ment, but that is not always the case. Remember, if you retire at 65 and
live into your 90s, your assets still need to grow to combat inflation and
longevity.
What Are Your Goals?
Your goals anchor your asset allocation strategy. Advisors use tools
like the Monte Carlo simulations to project outcomes and determine the
growth rate required to achieve such goals. This analysis balances the
risk required with your comfort level to get you there.
Example: An investor wants to buy a second home, pay for their kids’
college, or retire early. They may need a specific dollar goal to reach with-
in 10 years. Based on projections of returns expected for an asset alloca-
tion over that time period, you can see the probability of success.
When Will the Funds Be Needed?
Your age and life stage have a significant impact on the time horizon
of your investments. How long your investments will remain untouched
shapes your allocation. Typically, a longer time horizon allows for an
investor to take on greater risk, as there is time to recover from declines.
Can You Handle a Volatile Market?
Your risk tolerance determines the asset allocation’s composition. Fear
of loss can drive investors to sell during a downturn, which is often the
wrong decision. A trusted advisor can help you remove emotions from
investing to ensure that you do not lose sight of your long-term plan. Many
investors consider moving to cash during volatility, but this can lock in
losses and miss rebounds, as seen in April when markets recovered swift-
ly after a sharp decline.
Example: The month of April 2025 is a great illustration of this. Fol-
lowing President Trump’s declaration of ‘Liberation Day,’ the S&P 500
saw a 12.14% decline from April 2 to April 8. The uncertainty surround-
ing tariffs left investor sentiment low. By the end of April, the market had
largely recovered, finishing just 1.80% below its April 2 level. The momen-
tum and recovery of the market carried into the month of May, which fin-
ished up 5.49%, the best May performance for the S&P 500 since 1990.
Investors who exited the mar-
ket on the 12.14% drop likely
missed the ensuing recovery
and growth.
Asset
Continued on page 27 >>
Call us today to schedule a chat.
Jack Vadnais, CFP®
Director of FCU Investment Services and LPL Financial Advisor
1976 Main Street, Springfield, MA
Email: [email protected]
Direct: (413) 505-5724 | Cell: (413) 575-5483
Michael S. Johnson
Associate Director of FCU Investment Services and LPL Financial Advisor
191 Avenue A, Turners Falls, MA
Email: [email protected]
Direct: (413) 505-5815 | Cell: (413) 387-9341
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26 JULY 7, 2025
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