How to prepare your investment portfolio for volatile times

Investing can be unpredictable but there is one certainty: your investment portfolio will encounter volatility.

This is true whether you are an experienced investor or a beginner investor, and whether you invest in individual stocks or funds.

The volatility of stock markets in recent weeks due to the Iran conflict has caused sharp swings in asset prices.

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The main UK index, the FTSE 100, for example, fell 9.3% between the start of the US-Israel war on Iran on 28 February and 23 March. It has since recovered ground, though it is still down almost 3% since the start of the conflict, as of 14 April.

The S&P 500, the main US stock market, has bounced around since the start of the year and tumbled 200 points on 30 March as fighting in Iran intensified, before whiplashing back amid fragile peace talks.

Guy Monson, chief market strategist at asset manager Sarasin & Partners, said: “Wars are, by their nature, unpredictable. Unlike recent trade conflicts where damage is easily reversible, hot wars, as we have seen with Iran, cannot simply be managed or resolved solely by Washington. The US, Israel, Iran, Gulf states, and external powers all have distinct – and in some cases competing – objectives as we will see in the weeks ahead.

“The announcement of a two-week ceasefire should be understood in this context. It represents a pause in escalation rather than a resolution. While it reduces the immediate risk of direct confrontation, ongoing tensions – particularly in Lebanon – highlight how fragile this pause may prove to be.

“Investors need therefore to remain clear-headed but flexible, focusing less on the noise of daily developments and more on the structural forces that will shape markets in the months ahead.”

You may not be able to predict when your portfolio will enter volatile times, but here is how you can at least prepare your investment portfolio for it.

Ignore the noise

Investing is a long-term game so as long as your portfolio fits with your financial plan and level of risk, a bit of volatility shouldn’t do too much harm over a few decades in the stock market.

Some commentators even say you shouldn’t even check your investments when stock markets are falling as selling at a loss can mean missing out on a major rally.

“Market turbulence can be unsettling, but it’s important to remember it’s a natural part of investing, and that every long-term investor is likely to experience many dips in their investing lifetime,” said James Norton, head of retirement and investments at Vanguard Europe.

“It’s about time in the market, not timing the market. Historically, the best and worst trading days have tended to occur close together, often during periods of heightened market uncertainty, making the prospect of successfully timing the market almost impossible.”

To apply an example from 2025, had an investor sold their investments and moved to cash on the 8 of April 2025 in response to tariff induced volatility at the time, and then re-entered the market a month later on the 12 May, they would have cut their returns from 14.4% to 4.8% – nearly £1,000 less on a £10,000 portfolio, according to calculations by Vanguard.

Because markets recover over time, by staying invested and focusing on the long-term you’re more likely to see your money increase over time, even if there are rough patches along the way: Since 1972, the MSCI World Index has gone through eight bear markets. Each time it has recovered and grown.

Stay diversified

One of the oldest investment adages is to not put all your eggs in one basket. Diversification is key to riding volatile times.

Ensuring you have money spread across different types of stocks as well as using other assets such as bonds can ensure that if some parts of your portfolio are falling, other uncorrelated parts can pick up the slack.

Norton said: “One way to insulate your portfolio is to blend shares and bonds in a way that suits your attitude to risk and goals.

“Bonds have historically helped to stabilise portfolios during stock market downturns. By having a broad spread of investments across global markets, you can benefit from investments that may perform well when others are falling.”

However the outbreak of war in the Middle East at the end of February raised fears of inflation, and expectations that interest rates could rise, resulting in UK government bond – gilt – prices falling, though they have risen a little since.

Sarah Coles, head of personal finance at AJ Bell, said: “Gilt prices will rise and fall with demand, so investors aim to buy low and sell high. This comes with the investment risk that the price of a bond can fall before you sell it, so you could lose money. It’s very different to the risk profile of cash savings.”

Spot the opportunities

The greatest investment opportunities often come out of uncertain situations and a stock market decline may present a good time to enter the market.

Dan Coatsworth, head of markets at AJ Bell, said: “Dips and dividends were the key trends for AJ Bell DIY investors responding to Middle East conflict-driven market volatility [in the first week of the US-Israel war against Iran]. There were twice as many buy trades than sells between 2 and 6 March, implying that investors saw an opportunity to buy companies or funds at depressed prices.

“While there remains considerable uncertainty around the conflict and what it could mean for inflation and the direction of interest rates, certain investors might have taken a longer-term view. They might believe near-term earnings could disappoint and that’s already reflected in lower share prices, but they could also be confident an eventual resolution of the crisis paves the way for longer-term earnings growth.”

The latest period of stock market volatility could be seen as an opportune moment to identify investment-worthy stocks that were down less than the broader market.

“Traditionally, those are the stocks that are often quickest to recover or emerge as new market leaders, or there may be an opportunity to buy that stock you wanted to buy at a particular price, at an even lower price,” said JJ Kinahan, chief executive of IG North America.

“In these moments it can also be helpful to invest a small amount at a lower price to minimise the likelihood of significant losses.”

Control what you can

You can’t control performance and volatility but one of the biggest dents in your profits can actually come from the charges you pay for investing.

Platform, fund and trading fees can vary across different providers so it is important to shop around.

Check out our guide to the top investment platforms as well as providers paying cashback for your ISA or pension.

"Fees eat into your investment returns and this is particularly painful when stock markets are falling. Investing costs might not look like big numbers, but if you're getting a return of 4% and paying 2% in charges, that's half of your returns gone,” added Norton.

“So even supposed small costs can add up to big losses over time.”