The Tariff Tantrum Was Just the Start: Why Diversification Still Matters
- Rick Lake, CAIA, CETF, CBDA
- May 27, 2025
- 1 min read
Updated: Mar 20
Written for The Truth About Your Future (DACFP): The Alternative View
Date: May 27th, 2025.
Reassessing a Core Principle in a New Market Regime
Since early 2022, U.S. equities have posted negative monthly returns 16 times. In all but two of those months, bonds also declined. This breakdown of the traditional 60/40 portfolio has prompted many advisors and investors to question whether diversification still works.
They’re right to ask. The current environment is defined by heightened volatility, shifting policies, geopolitical shocks, and unpredictable moves in inflation, interest rates, and currencies. The assumptions that guided past asset allocations are being tested.
In this context, diversification—when executed with care—remains essential. It’s not just about spreading risk. It’s about building resilient portfolios designed to weather a wide range of market regimes while supporting long-term goals.
Today’s Markets Demand a Fresh Look
Diversification has long offered a disciplined framework for managing uncertainty. The aim is to reduce volatility and the severity of drawdowns, and to improve the consistency of returns.
Yet in recent years, traditional diversification—especially the equity/bond mix—has struggled. With macro volatility rising, equity leadership narrowing, and correlations shifting unpredictably, a more nuanced approach is required.
This isn’t theoretical. The “Tariff Tantrum”—a sharp selloff sparked by rising trade tensions—was a vivid example of how quickly markets can change. Such events compel advisors and investors to revisit portfolio construction.
This is an excerpt of the full article written here:
by by By Rick Lake, CAIA, CETF, CBDA | Founder, Narrative Alpha
