2025 was a tumultuous year and investors should expect the next 12 months to follow a similar path. In such uncertain times, diversification becomes critical. Here are three strategies to manage the unpredictability.
Be ready for uncertainty
We are just a few days into the year and the Trump administration has already taken control of Venezuela promising to expand the country’s oil production and seized a Russian-flagged “shadow fleet” vessel accused of trying to circumvent sanctions. There are also large-scale protests in Iran, another major oil producer, and the Russia-Ukraine war rumbles on with Europe rushing to re-arm with NATO looking more fragile than ever. Add to this volatility the concerns about an AI bubble and you could have the recipe for panic.
A common response to uncertainty in the markets is a retreat to cash or gold, but investors should be wary of such positions. Gold prices are already at record highs and recent JP Morgan research looking at 12 of the major regional wars, banking crises, critical elections and other catastrophic events of the past few decades shows that over three years a portfolio invested 60% in equities and 40% in bonds beat cash every time.
Diversify globally
The US stock market has become increasingly top-heavy with companies tied to artificial intelligence in recent years. Callie Cox of Ritholz Wealth Management explained to Morningstar: “What you should know, if you’re invested in a broad US stock market index fund, about a third of your portfolio is invested in the ‘Magnificent Seven’ stocks at the moment..You are very, very tech-heavy, whether you realize it or intend to be or not.”
The Magnificent Seven — investor shorthand for Alphabet, Amazon, Apple, Tesla, Meta Platforms, Microsoft, and Nvidia — currently account for more than a third of the S&P 500 and all are heavily invested in artificial intelligence (AI). “Whether there are excesses… in the equity market on AI is no longer questionable, but to figure out which exact companies will be the losers and when this reckoning will happen is difficult,” fund management firm Amundi chief investment officer Vincent Mortier recently told the FT.
Not everyone believes we are in an AI bubble, but even those that are more bullish about AI stocks, like BlackRock international chief investment officer Helen Jewell, warn that “investors should prepare for a bumpy ride in 2026”.
Outside the US there is a long-term growth story for emerging markets. India, Brazil, and South Africa all offer opportunities for investment that are less dependent on a few large tech firms. And compared to the US, stocks in the rest of the world could be considered “cheap” according to Cliff Asness of AQR Capital Management, as US share prices have appreciated out of proportion to their business fundamentals.
In the UK, the FTSE 100 outperformed expectations and a gloomy national outlook in 2025, jumping 22% over the year. The index recently broke 10,000 for the first time, which could partially be due to its exposure to “hard assets” such as gold, silver, and oil, which some see as a haven in a crisis. FTSE 100 and FTSE 250 members last year also paid out £152billion in dividends and share buybacks over the last year, which should give most investors pause for thought despite the headlines and murmurs from Westminster.
Rethink property
The tax increase on property income and the introduction of the ‘Mansion tax’ in the budget may not have been welcomed by property investors, but now the budget has been published the end of speculation and government kite-flying is a relief. Now, with inflation easing and interest rates beginning to fall, the outlook for 2026 is more stable and there is a sense of optimism amongst investors. The OBR’s latest outlook also gave a view on activity levels in the housing market, with transactions expected to rise from 1.1 million in 2024 to 1.3 million by 2029, showing a slow but steady increase.
House prices are predicted to rise by between 2 and 4 per cent in 2026 according to Nationwide. Meanwhile Halifax predicts a rise of 1 per cent to 3 per cent and Savills predicts a rise of 2 per cent. These rises do not forecast a rapid post-budget recovery, but with mortgage costs falling house prices are expected to move in the right direction.
Meanwhile, in the rental sector landlords will have to manage additional regulatory changes in 2026, including the Renters’ Rights Act, the expansion of Making Tax Digital for income tax, and ongoing uncertainty around future energy efficiency requirements. These additional changes will further increase the expense and administrative burdens on landlords, which will have an outsized impact on smaller landlords and those reliant upon buy-to-let, who are expected to continue their exodus.
However, for those that can withstand the additional burdens or those that have exposure to the market via a platform where such burdens are already managed there is an upside in the increased rental prices. Both Zoopla and Savills expect rises of between 2 per cent and 3 per cent a year in the coming years, which may be slower than the rapidly rising rents in the recent post-pandemic years, but it is a level in line with historic norms. In a period of economic and social uncertainty, UK property continues to offer advantages for those looking for diversification.
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