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[Meet life goals] Build a portfolio with shock-absorbers

10 July 2025

Affluent Investor Snapshot 2025: A Quality of Life special report[@affluent-investor-snapshot-2025]

We surveyed over 10,000 affluent individuals across 12 markets and asked some simple yet important questions about investment behaviours worldwide.

Build a portfolio with shock-absorbers

By Willem Sels

Global Chief Investment Officer, HSBC Private Bank and Premier Wealth

Key takeaways

  • Build shock absorbers, not sandbags  Diversifying across asset classes cushions the jolts of volatility while still letting your capital grow.
  • Cash is a costly comfort – Parking too much on the sidelines flattens long-term growth and lets inflation do the damage; better to stay invested through assets that can both defend and compound.
  • Layer your defences – Combine bonds, gold, infrastructure, real estate and hedge strategies so at least one protector is working in every market scenario.

When the road turns bumpy, you trust the suspension and keep rolling. Investors have been doing exactly that in today’s volatile markets. Rather than fleeing to cash, they’ve kept the core engine of equities and high-quality bonds running while adding extra shock absorbers: government bonds for market corrections, gold for inflation jolts, infrastructure and real estate for steady cash flow cushioning, and nimble hedge fund strategies for unexpected twists. To see this change, take a look at the chart below. With this kit in place, a portfolio can still accelerate without feeling every pothole.

Volatility is inevitable, but the damage it inflicts is optional. Equip your investment portfolio with several shock absorbers, each tuned to a different market risk - and your portfolio can keep compounding over the long run with far less drama.

Installing shock absorbers doesn’t change the laws of physics; it simply tames their impact. Investing works the same way. Higher long-term returns usually come with higher risk because investors must be compensated for bearing uncertainty. There’s no free lunch.

There is, however, one genuine upgrade that calms the ride without cutting speed—diversification.

Diversification spreads your money across assets that don’t move in lockstep, so when one wheel dips another may rise. The portfolio sways less yet still aims for its full return potential.

That discipline matters most when the surface deteriorates. In recent months markets have had to navigate recession fears, sticky inflation, trade frictions, ballooning government debt, unpredictable policy shifts and even increased geo-political tensions, especially in the US. With potholes multiplying, investors are searching for ways to steady the wheel, and well-chosen diversifiers are delivering exactly that.

Diversification beats hoarding cash

Everyone needs some cash for planned and unexpected expenses. But raising cash levels when markets turn volatile often backfires. Cash drags on long-term returns and gets eroded by inflation. Worse, investors tend to sell at exactly the wrong time, during market crashes when fear peaks. The problem is that markets often rebound sharply, right after these crashes, and being out of the market means missing those critical recovery days.

Recent months proved this point. Policy reversals created wild swings where terrible days were quickly followed by strong rebounds. Missing those rebounds is costly. Look at the chart below. Over the last 10 years, a well-diversified portfolio generated 79% returns, but missing just the 10 best days cut that to 44%.

The lesson here is to stay invested. Diversification helps by reducing volatility, making you less likely to panic-sell when markets get bumpy.

Remaining invested is key, as missing just a few days can substantially lower your returns

Diversify your diversifiers

When people think of diversifiers, they usually think of government bonds and gold. Data from our latest Affluent Investor Snapshot shows that affluent investors have doubled their allocations to gold and precious metals over the past year, we also see increased interest in alternative assets.

Alternative investment options are broader: infrastructure, real estate, and hedge funds can all provide valuable diversification. Each works best under different conditions.

High-quality government bonds excel at protecting against recession risks and offer excellent liquidity. But they struggle when inflation or government debt concerns dominate. Gold shines in those scenarios as its performance is driven by its safe-haven properties during periods of market turbulence and elevated geopolitical risk. Infrastructure assets offer unique protection because operators often have contracted rates unrelated to economic demand, making them recession-proof. These rates are typically inflation-linked too, providing dual protection. Hedge funds can generate returns in any market environment thanks to their ability to both buy and sell short.

Markets have cycled through all these concerns recently, shifting focus almost weekly. Since it's impossible to predict which risk will dominate next, we recommend taking exposure to multiple diversifiers – in other words, 'diversify your diversifiers.'

The power of alternatives under different market scenarios

 

Recession risks

Rising inflation

Government debt concerns

Equity market correction

High quality government bonds

++

-

-

++

Gold

+

+

+

+

Infrastructure

+

+

0

0

Real estate

+

+

0

0

Hedge funds

+

+

+

0

Note: ++: Optimal performance, +: Good performance, 0: Neutral, -: Poor performance

How to access these diversifiers? 

Building a diversified portfolio is easier than ever. ETFs provide simple, cost-effective access to government bonds, gold, and infrastructure assets. For broader exposure, ready-made multi-asset funds combine multiple diversifiers in professionally managed portfolios, available across different risk profiles and currencies.

The beauty of today’s investment landscape is choice. You can build your own shock‑absorber system piece by piece or let professional fund managers do the work. Either way, the goal is the same: keep your portfolio moving smoothly, no matter how rough the road ahead becomes.

International Investment Centre

Accessed through mobile or online banking to help you make your own investment decisions

Portfolio investment funds

A range of ready-made portfolios with different levels of risk

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