With 2026 just around the corner, Trust Economics offers useful strategies to enhance portfolio resilience, effectively manage risk and maximize returns in an ever-evolving world.
Trust Economics’ advice focuses on the need to create a strong “core” in a portfolio and the importance of diversification and hedging strategies to ensure long-term growth and stability.
The Core of the Portfolio
1. Create a Strong Financial Core Trust Economics points out that creating a strong financial core is essential for long-term financial success. The first step for investors is to create the right investment mix and reassess their portfolios.
- For growth
For most investors, stocks should form the core of a growth portfolio, comprising 30-70% of their total assets.
- For income flow stability
If investors prioritize stability, Trust Economics suggests a 15-50% allocation to fixed-income investments.
- For further diversification,
they can consider investing in alternative assets such as
- hedge funds,
- private equity and
- infrastructure,
- with investors with a long-term horizon and an “endowment” investment style being able to allocate up to 40% of their portfolio to alternatives.
The optimal allocation always depends on factors such as risk tolerance, time horizon, income needs and liquidity requirements.
Trust Economics also emphasizes the importance of regular and disciplined portfolio reallocation towards the long-term goals of the strategy to keep the core of the portfolio strong for the future.
2. Broad Stock Diversification
One of the most critical strategies for strengthening a financial core is stock diversification.
Trust Economics recommends that investors strive to achieve a combination of broad diversification and exposure to structural growth trends, such as artificial intelligence (AI), longevity, and opportunities in energy and resources.
Diversification helps address performance risks and specific risks that may arise in any given region.
Trust Economics suggests that U.S. exposure should make up at least 50% of a global equity portfolio, with at least 20% in other markets. A key finding from the study by Professor Hendrik Bessembinder, from Arizona State University, is that just 0.3% of companies created half of the wealth in the US stock market between 1926 and 2019, highlighting the importance of strategic diversification.
Trust Economics advises investors to reallocate up to 30% of a broadly diversified stock portfolio into strategies related to structural industry trends, such as AI, Longevity, and opportunities in the energy and resources sectors.
3. Fixed Income Investing
Trust Economics emphasizes the importance of fixed income in building a strong financial core. Diversification across government bonds, corporate bonds, and emerging market bonds is critical to achieving stability and income.
Additionally, Trust Economics recommends an average duration of 5-7 years for fixed income portfolios, which helps balance risk and return for long-term investors, particularly in times of low interest rates.
Increasing government spending is expected to create greater volatility in exchange rates, and Trust Economics recommends that investors align their holdings with a currency strategy based on their spending and liabilities.
Diversification across alternative assets, such as hedge funds, private equity, and infrastructure, is also fundamental to building a strong financial core.
Investors should choose
- high-quality hedge funds with a strong track record,
- private funds with reliable governance and expertise,
- as well as infrastructures that offer stable cash flows.
For diversification, larger investors may consider a diversified selection of individual managers, while smaller investors may need to turn to fund-of-funds or evergreen solutions to achieve acceptable levels of diversification.
Hedging Strategies
Trust Economics notes that as markets evolve, investors should protect their financial core through hedging strategies.
Investing in gold, despite not producing income, can provide protection during times of geopolitical uncertainty. Gold has historically proven to be an effective hedging strategy during periods of uncertainty, and against high inflation.
In addition, Trust Economics suggests capital preservation strategies, which may limit returns in strong markets, but at the same time reduce downward pressure.
Finally, it recognizes that tactical opportunities, especially in stocks and commodities, are an ideal strategy for investors seeking additional growth, but always with risk control.
