Since the 1950s, the wealth management world has embraced a strict and ‘efficient’ allocation between equities and bonds, but recent events have changed the formula.
The market volatility of recent months has left many investors realising their portfolios are less diversified than they might once have thought. Bonds — traditionally the default safe haven to hedge against equity risk — started behaving like risk assets following the turbulence caused by tariffs and yields remain elevated as investors increasingly question the US’s economic stability.
This convergence of risk is the final nail in the coffin for the 60/40 portfolio, the mainstay of wealth managers since the 1950s. Investors need a more holistic, multi-layered approach to downside protection, and with considerable tariff uncertainty and inflation risk still impacting markets, this should be an urgent priority.
Today’s most effective safe havens fall into three distinct but complementary asset classes — gold, liquid alternatives, and cash. Each serves a different purpose, but when combined in a portfolio, they offer a multi-layered defence when traditional correlations in markets start to break down.
Gold shines brightly
Despite its relatively limited real-world uses, gold has a track record of preserving wealth that dates back centuries. The precious metal has long been seen as a sanctuary during periods of stress in markets, and has repeatedly hit all-time highs during 2025, while equities and bonds have fallen in unison.
This is not to say that gold is immune to short-term distortions. In the immediate aftermath of Donald Trump’s ‘Liberation Day’ tariff announcement, gold briefly fell while stocks and bonds sold off — serving as an important reminder that while gold tends to perform well in environments of systemic stress or monetary debasement, it can be caught in liquidity-driven selloffs.
Gold has since recovered and remains near its peak even as equity markets have recovered, and for long-term investors, structural tailwinds suggest it warrants a significant allocation in portfolios beyond just being a short-term shelter. Central bank buying of the yellow metal has been increasing in recent years, with countries like China, India and Russia looking to diversify their reserves away from dollar-denominated assets, and this looks set to continue as a more multipolar and isolationist world emerges.
The scale of central bank buying may yet be underestimated, as tracking flows in gold can be difficult due to the nature of the asset class. Forward thinking wealth managers are close to doubling gold allocation this year to take advantage of this trend, preferring physically backed exchange traded funds, which are closer to buying real gold bullion than synthetic alternatives.
Double diversification
Uncorrelated liquid alternatives represent highly diversified options for those looking to reduce portfolio risk without compromising on liquidity in areas like private equity or real estate, and there is an increasingly varied universe of these funds available to investors.
One approach is to invest in market neutral equity funds. These strategies offer access to equity markets but with significantly lower volatility compared to their long-only counterparts. For a double layer of diversification, investors could also consider funds of hedge funds, which incorporate various classic hedge fund strategies across a range of asset classes. These have the added benefit of not only being uncorrelated to the wider market but also to each other. Increasing exposure to the liquid alternatives space has helped put capital to work without taking direct equity risk — a move that has shown its worth amid tariff turbulence.
The challenge for investors today goes beyond just finding assets that perform during volatile periods. It is also crucial to have defensive positions uncorrelated to one another
Investors understandably want wealth managers to put cash to work, but tactically holding cash for short periods — or parking it in cash equivalents like money market funds — can be a wise move during periods of volatility. Money market funds in sterling offer an appealing yield of around 4.5 per cent with greater optionality than fixed income — and with little risk of a capital loss.
Maintaining some exposure to cash enables investors to deploy capital quickly and tactically into other asset classes as conditions become more favourable. For example, when greater clarity emerges around the inflationary outlook, longer-dated bonds will represent an attractive opportunity to reposition for higher long-term returns, but until then, maintaining some ‘dry powder’ should be seen as a strategic move rather than an act of indecision.
Triple threat
The challenge for investors today goes beyond just finding assets that perform during volatile periods. It is also crucial to have defensive positions uncorrelated to one another. These three defensive buffers are fundamentally different in how they work and why they work. Together, they offer diversified protection across time horizons and risk types. Gold guards against currency debasement and geopolitical shocks, liquid alternatives buffer against market volatility with low correlation to equities and bonds, and cash offers immediate flexibility and capital preservation.
These havens are not immune from their own challenges. Gold’s behaviour in recent sell-offs has been mixed, reminding us that no single asset can shoulder the burden of protection, while liquid alternatives require careful manager selection, and cash can be eroded by inflation over the long term.
However, when brought together, these assets represent a more dynamic and effective approach to portfolio construction, than the traditional 60/40 approach. By recognising the distinct strengths and limitations of particular asset classes, investors can build portfolios that are better equipped to withstand future shocks — which may not be far away.
Jonathan Unwin, UK head of portfolio management at Mirabaud Wealth Management
