The Strategic Investor’s Guide to Building a Resilient Portfolio

Table of Contents Expand Table of Contents Why Portfolio Resilience Matters Exploring Your Asset Options Sharpening Your Strategy Making Tax-Savvy Moves Staying Strategic, Not Reactive Frequently Asked Questions (FAQs) The Bottom Line Close You’ve mastered the basics of investing, like stocks, bonds, and retirement accounts. Now, you’re ready to take your investment strategy to the next level and build a portfolio that can weather whatever the market brings. Discover powerful ways to enhance your resilience, including asset diversification, tax optimization, and ETF investing. Key Takeaways A resilient portfolio can help limit your losses in a downturn, improving long-term returns and reducing stress that might cause emotional decisions.You can build portfolio resilience by diversifying into asset classes beyond stocks, such as bonds, real estate, and private credit. ETFs are investment funds that can provide instant diversification in a single investment, often for a low expense ratio.Strategic tax planning, regular re-evaluation, and a long-term mindset are also essential for maintaining overall resilience.The Strategic Investor Spotlight explores each of these moves in depth. Why Portfolio Resilience Matters If history has proven anything about investing, it’s that volatility is a given when holding stocks. The market as a whole has long delivered strong returns on average, but year-to-year swings can be wildly unpredictable. Note For example, the S&P 500 returned 28.47% in 2021, lost 18.04% in 2022, then bounced back up 26.06% in 2023. That uncertainty can be nerve-wracking, especially during extended downturns, but volatility is perfectly normal. The real danger is that it will cause you to deviate from your investment strategy, lock in your losses, and miss out on a potential recovery. Building a more resilient portfolio is one of the best ways to help prevent that outcome. By limiting losses in a downturn, you not only protect your gains—which can improve long-term returns—but also avoid the stress that could lead to emotional decisions. “Being a resilient investor is all about staying invested during market downturns,” said Daniel Shomper, CFP, senior associate wealth manager at Fairway Wealth Management. “This gives investments time to recover, avoiding realized losses. More importantly, it eliminates the need for timing the reinvestment. Investors who sell in a panic often wait for the ‘right’ time to get back in and miss the subsequent rebound, which can weigh down long-term returns.” Explore Your Options Options vs. Futures: What’s the Difference? Updated Jun 06, 2024 How to Diversify Your Portfolio Beyond Stocks Updated Oct 20, 2025 Employee Stock Ownership Plan (ESOP): What It Is, How It Works, and Advantages Updated Oct 17, 2025 Can You Have an IRA and a 401(k)? Updated Dec 19, 2024 Exploring Your Asset Options Stocks often make up the bulk of investment portfolios in the United States. According to the latest Gallup data, 62% of Americans own stocks, whether individually or through some sort of fund. But while stocks can be powerful growth drivers, a 100% stock portfolio is unlikely to be the most resilient. If you want to mitigate the effects of market volatility, diversifying into other asset classes is often essential. “Investors should think about expanding beyond stocks as soon as their portfolio reaches a level where preserving capital becomes as important as growing it,” said Jimmy Doogan, CFA, portfolio manager at Crestwood Advisors. “Early in wealth building, being stock-heavy makes sense because the investor’s biggest asset is time. But as wealth continues to grow, or when income needs and specific goals emerge—like purchasing a home—diversification becomes critical.” Here are some popular asset classes that can supplement stocks in a portfolio: Bonds: Provide stability and a predictable income stream. Often move differently from stocks, which can smooth out overall portfolio performance in downturns. Real estate: Offers the potential for cash flow and capital appreciation. Leverage and industry expertise may allow you to achieve outsized returns. Alternatives: Refers to asset classes like private credit and private equity. Can provide exposure to unique opportunities not tied to public markets, though they may come with higher risk. “Having an allocation to multiple asset classes reduces the likelihood of needing to sell an investment at a loss when cash is needed,” said Shomper. “It also helps stave off panic when a particular asset class, segment, or individual security takes a large downturn, since the rest of the portfolio acts as a buoy to stabilize overall returns.” Using ETFs as Building Blocks Exchange-traded funds (ETFs) are a type of investment fund that holds multiple underlying assets, such as stocks, bonds, or commodities. They can provide broad diversification within a single investment, often for a very low expense ratio. As a result, they frequently make useful tools when building a resilient portfolio. ETFs are similar to mutual funds, but you can trade ETFs on an exchange throughout the day, like individual stocks. Historically, ETFs have also tended to offer lower fees, lower minimum investment thresholds, and greater tax efficiency. However, their traits can differ significantly between types. Important Not all ETFs are created equal. Fees, holdings, and performance can vary significantly. Here are some of the most notable ETF variations: Passive ETFs: These automatically follow a predetermined set of investing rules, requiring little to no active management. Actively managed ETFs: Active ETFs are run by professionals who buy and sell holdings, trying to outperform benchmarks. Index ETFs: These are passive ETFs designed to track a specific market index, such as the S&P 500. Sector ETFs: Also known as industry ETFs, these passive funds invest in stocks within a specific economic sector, like technology or health care. Dividend ETFs: These invest in stocks with a history of paying regular, often increasing, dividends to shareholders. “Using index ETFs for the core of a portfolio can help investors stay the course,” said Shomper. “Since they provide exposure to a clearly defined market segment, investors know what to expect from them in different market environments.” ETFs Index ETF: Definition, Types, Advantages, and Risks Updated Oct 17, 2025 Actively Managed ETF: Meaning, Overview, Limitations Updated Jan 26, 2024 Dividend ETF: What it Means, How it Works Updated Jun 03, 2025 What Are Exchange-Traded Notes (ETNs), and How Do They Work? Updated Jun 05, 2025 Sharpening Your Strategy Investment strategy isn’t something you set and forget, no matter how confident you are in it. Over time, your personal and financial circumstances inevitably change. To keep your portfolio resilient, it’s important to review your plan at least once a year and after major life events, like marriage or having a child. Often, you’ll only need to make minor tweaks, such as rebalancing to maintain your asset allocation. But sometimes, you may need to make more significant updates, such as rethinking your choice of investment vehicle. For example, you might change from a mutual fund to an ETF if you can find an equivalent fund with a lower expense ratio. Important Rebalancing at least once a year keeps your portfolio aligned with your goals. However, if you feel confident in your core investing strategy, you may want to experiment with more advanced, higher-risk tactics using a small percentage of your portfolio. In that case, derivatives may be worth investigating, such as options, futures, and swaps. These are financial contracts between two or more parties that derive their value from an underlying asset or group of assets. “Derivatives can dramatically amplify both upside and downside potential, while also shifting the likelihood of each,” said Sean Sun, managing partner at Maridea Wealth Management. “Imagine a game where a coin flip has a 50-50 chance of losing 100% on tails but gaining 1,000% on heads. You'd want to play that game until the end of time.” However, while derivatives offer new opportunities, they also come with complex risks. Be careful not to let them undermine the resilience you’re trying to build. “Derivatives can be powerful tools, but wielding them effectively requires deep knowledge and disciplined execution,” said Sun. Re-Evaluate Your Plan Tax-Loss Harvesting: Definition and Example Updated Mar 07, 2025 Covered Call vs. Regular Call: What's the Difference? Updated Feb 07, 2024 The Right Time to Change From Mutual Funds to ETFs Updated Nov 26, 2024 How To Evaluate ETF Performance Updated Dec 19, 2024 Making Tax-Savvy Moves Following an efficient tax strategy is another key part of building a resilient portfolio, and the foundation of tax efficiency is asset location. This refers to the account you place an investment in, such as a 401(k), individual retirement account (IRA), or taxable brokerage account. The order in which you fund these accounts—and how much you contribute to each one—has a significant impact on the amount of taxes you pay over your lifetime. Important For example, contributing to a traditional 401(k) lowers your taxable income, and your investments grow tax-deferred. However, you can’t withdraw your funds without a tax penalty until age 59 1⁄2. Investing in a taxable brokerage account allows you to withdraw without penalty, but your earnings are taxable. “For order of contributions, I typically recommend prioritizing the 401(k) and HSA,” said Evan Luongo, CFP, founder of NoDa Wealth. “With the 401(k), at a minimum, you should contribute enough to capture the full employer match. The HSA is powerful because of its triple tax benefit. After that, the next step depends on goals.” As your portfolio grows more complex, you can also consider more active strategies. One of the most popular is tax-loss harvesting, which involves selling investments at a loss to offset gains or ordinary income. You typically reinvest the funds in a similar—but not identical—asset to maintain your target exposure without triggering a wash sale. “We usually introduce tax-loss harvesting once a client has built a taxable account large enough that realized losses could offset meaningful gains or ordinary income,” said Doogan. “The right time is often during significant market volatility, when losses may be most visible.” Tip Tax strategies can be powerful, but they’re also complex. Consider consulting a tax professional before attempting to implement them. Staying Strategic, Not Reactive As important as portfolio resilience is, it isn’t sufficient on its own. No portfolio is immune to volatility, so you also have to cultivate a long-term mindset. Understand that ups and downs are part of the process and stay committed to investing through them. Important Resilience is just as much about discipline as building a portfolio that can weather market cycles. “Market swings are the cost of admission for investors who want to capture long-term growth,” said Luongo. “It never feels comfortable, but decades of data show two things: (1) volatility is normal, and (2) markets recover, and usually to higher levels than before.” Emotional reactions can undermine even the best investment strategy. Stay patient, avoid the temptation to chase trends, and adjust your strategy only when there’s a logical reason to do so. If you have trouble maintaining perspective, consider working with a financial advisor. “I'm a nervous flyer, so whenever I hit turbulence, I like to watch videos of airplane wings being stress-tested—bent nearly vertical before they finally fail,” said Sun. “It reminds me just how resilient this flying hunk of metal really is.” “I think of market volatility the same way. Anytime we see red in our portfolios, we ask ourselves, have the fundamentals changed? Has the underlying thesis changed? If not, then the wings still hold and we stay buckled in.” What Makes a Portfolio Resilient? A resilient portfolio can limit volatility and mitigate losses in a downturn. You may be able to make your portfolio more resilient by diversifying across different asset classes and avoiding overexposure to any single investment. How Often Should I Re-Evaluate My Investments? You should re-evaluate your investments at least once a year and whenever major life events occur. For example, that would include getting married, having children, or retiring. Do I Need To Use Options or Futures To Strengthen My Portfolio? No, you don’t need to use options or futures to strengthen your portfolio. These and other types of derivatives are advanced tools that carry significant risks. You can build a more resilient portfolio without them, such as with ETFs and tax strategy. The Bottom Line Building a resilient portfolio is about limiting losses in a downturn to improve returns and reduce stress. You can accomplish this with tactics like diversifying across asset classes, leveraging ETFs, avoiding taxes, and re-evaluating regularly. Combined with a long-term investing mindset, you’ll be well-equipped to weather market cycles. Torsten Asmus / Getty Images Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. NYU Stern School of Business. "Historical Returns on Stocks, Bonds and Bills: 1928-2024." Gallup. "What Percentage of Americans Own Stock?" U.S. Securities and Exchange Commission. "Mutual Funds and Exchange-Traded Funds (ETFs) – A Guide for Investors." Internal Revenue Service. "Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs." Read more Partner Links Newsletter Sign Up Newsletter Sign Up We Care About Your PrivacyWe and our 100 partners store and/or access information on a device, such as unique IDs in cookies to process personal data. You may accept or manage your choices by clicking below, including your right to object where legitimate interest is used, or at any time in the privacy policy page. These choices will be signaled to our partners and will not affect browsing data.We and our partners process data to provide:Store and/or access information on a device. Use limited data to select advertising. Create profiles for personalised advertising. Use profiles to select personalised advertising. Create profiles to personalise content. Use profiles to select personalised content. Measure advertising performance. 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