Navigating Market Volatility Series September 2025

After a strong run in recent months, markets are once again testing new highs, a reminder that momentum can sometimes endure longer than many expect, even amid lingering uncertainties. Elevated valuations and shifting expectations may prompt some investors to question whether the rally can continue. Yet this also presents a timely opportunity to revisit some key principles for managing through market ups and downs and to reinforce the importance of staying invested, diversified, and focused on your long-term strategy.  

Concept #7: Diversification – don’t put all your eggs in one basket

While media headlines often spotlight major indices such as the S&P 500 or S&P/ASX 200, most investors hold a much broader mix of assets within their portfolios. Diversification remains one of the most effective ways to manage risk and achieve more consistent returns through changing market conditions. By spreading investments across and within asset classes — including shares, bonds (fixed interest), and cash — investors can benefit from the fact that these assets tend to perform differently at various points in the market cycle. This process, known as asset allocation, is tailored to each investor’s circumstances, goals, and tolerance for risk.

The table below highlights annual returns across major asset classes commonly held in Australian portfolios since the Global Financial Crisis. What stands out is how unpredictable relative performance can be from year to year. Rather than chasing last year’s top performers, a well-diversified portfolio helps smooth out the ups and downs, positioning investors to achieve steadier results over the long term.