Investing can be an exciting process, and just as easily, a nerve-racking one.
Lately, the news has been rife with concerns about markets, causing some investors to feel antsy about their holdings. Unfortunately, volatility is just part of having money in the market. If you were guaranteed to make profits all the time, everyone would be doing it!
Still, it’s natural to think about how you could protect your money if the markets were to take a turn for the worse. But before making any drastic changes, let’s explore a few different popular portfolio strategies, how they’ve performed over time and how they fared when markets dipped.
Three different types of investors
An ‘ambitious investor’, who is more willing to ride out market volatility and aim for high growth in their investments, might opt to hold all equities. Alternatively, an investor searching for a bit more security may opt to hold 40% of their portfolio in bonds, and the other 60% in equities. This is often referred to as a 60/40 portfolio, which we will call the ‘balanced investor’. Another strategy that has crept out from under the floorboards among cautious investors is the ‘cockroach portfolio’, which is designed to weather even the most intense market scenarios. This is devised of an even split between equities, bonds, cash, and gold.
Over the long term, what has been the most fruitful approach for investors? Of course, this could differ depending on the exact funds held, but to illustrate, we’ve created mock portfolios for each of the three types of investors.*
Performance in the long term
Over the past 15 years, the portfolio investing in purely equities would likely have yielded the best returns. A fund tracking the MSCI World gained about 433% during this time, enjoying the recovery from the financial crisis and a strong run of years for company valuations helped by low interest rates. Meanwhile, the balanced 60/40 portfolio gained 261% while a cockroach portfolio gained 192%.**
The past 15 years seems like an excellent period to be invested looking back, but hindsight is often 20/20. In the moment, dips following the beginning of the Covid-19 pandemic, and this April's tariff announcements felt like they could be the beginning of a much longer downturn and still had a significant impact on investments.
In fact, limiting the performance period to the past year, the cockroach portfolio has been the best performer with a 21% return, thanks to high gold prices. Meanwhile, equities are about six percentage points below at 15%.
It’s important to consider your investment horizons during these periods of volatility. If you are planning to use the money you have invested relatively soon, you’ll likely be less comfortable with risk, and want to know more exactly how much you’ll be able to spend. If you plan on keeping your money in the market for a while, the short-term performance will likely be a less significant factor for you. Even though the ‘cockroach’ portfolio has proved effective this year, it’s important to consider if this will continue in the long term.
Although the ‘cockroach’ portfolio yielded smaller returns in the long term, the bumps along the way were also much less severe. During COVID-19, an equity investment in the MSCI World would have dropped about 22% from the start of 2020 to mid-March, while the ‘cockroach’ portfolio weathered a drop of just 5%. But by the end of the year, the equity investment was back on top again.
It's important to note that in terms of downturns, the market has seemed very kind over the past 15 years, with slumps recovering within a year. This is not always the case. The dot com bubble of the early 2000s and the Great Financial Crisis meant that the MSCI World took almost 10 years to recover to the level it was in 2000, a much longer stretch for investors to weather.**
Sticking to your method
Coming up with a risk level that you’re comfortable with from the start can be helpful when investing. Making constant trades into riskier or less risky investments can quickly eat into any returns and leave you worse off than where you started. In addition, taking money out of the market, even when it’s dropping, can mean missing out on gains later.
A study by Schroders of the US stock market found that if someone were to invest for just a month, they would lose money 40% of the time, based on inflation-adjusted returns. However, if that was extended to a year, it became just 30% of the time, and only 13% across 10 years. Meanwhile, those keeping their money in cash had a 58% chance of losing money in a year and a 55% chance of losing money in five years, when factoring in inflation.
Market downfalls can be scary. But if you have confidence in your investment method, sticking with it has historically paid off for investors.
*Equity portfolio constructed of iShares MSCI World UCITS ETF. 60/40 portfolio including MSCI World and ICE BofA Global Broad Market. Cockroach portfolio including MSCI World, ICE BofA Global Broad Market, Bank of England Base Rate, and LBMA Gold Price AM. Portfolio allocations set at beginning of period.
**Not including fees
***Source: FE Analytics MSCI World in terms of pound sterling
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
