Contents
The views and data on this page should not be taken as a recommendation or advice. Testimonials are from genuine financial advisers and investors who have given permission for their comments to be used. Names have been removed to protect privacy.
Adapting to volatility
If behavioural coaching helps investors navigate volatility, resilient portfolio design helps them endure it. We explore how advisers can help investors avoid costly reactions and stay focused on their goals when markets become unsettled. Having covered the importance of emotional resilience, it’s just as important to look at how the wealth industry can build more robust, well-diversified, easy-access multi-asset portfolios that dampen volatility yet still provide desired long-term outcomes.
When volatility hits, everyone wants to do something
The instinct to act during periods of volatility is widespread. Whether that means moving to cash, seeking safer assets or pursuing a new opportunity, uncertainty often challenges even the most carefully considered long-term strategies.
Almost half of investors (48%) report moving into more defensive positions during a recent period of market turbulence. Advisers cite loss aversion as the most common behavioural bias influencing client decisions (69%), followed by herd behaviour, anchoring and confirmation bias (around 40% each), and overconfidence (27%).
In the moment, seeking shelter in lower-risk assets or cash may feel ‘right’ or ‘prudent’, even when the long-term case for doing so is understood to be ineffective for building portfolio wealth.
77% of investors would consider moving money into an easy-to-access fund that included private assets if one were available to them.
Seeking safety – and seeking something different
The case for private assets gained greater attention in 2022, when equities and bonds fell together, prompting renewed debate about traditional diversification.
62% of advisers agree that diversification is a key benefit of private market allocation.
This brought the relevance of the once ‘go-to’ 60/40 equity-bond portfolio into question. Retail investors – encouraged by government – were waking up to the potential of an asset class institutional investors had been using for decades.
Beyond private assets, perceivably exciting opportunities abound in newer, less-regulated alternative assets like cryptocurrency. A very different asset from private markets but one in which investor interest is strong. According to our survey, net consumer interest in investing in crypto assets sits at 61%, climbing above 80% for both affluent advised investors and the younger 18-34 age groups.
Curiosity itself is not a problem. It becomes one when it translates into actions that undermine a long-term financial plan. One opportunity for advisers is to help clients distinguish between a genuine search for diversification and investment decisions driven by herd behaviour, market narratives or social media influence.
Financial advisers are much more reticent on cryptocurrency. While much has been done to bring crypto into mainstream investing, advisers have been slow to embrace the use of these assets in financial plans, and it may well be something that advised investors do outside of their advised relationship.
Just 10% of advisers say they’re interested in adding crypto assets to their investment strategies.
The challenge for advisers is helping clients distinguish between diversification that supports resilience and novelty that introduces new risks.
Building resilience when time is of the essence
Events – both internal (personal or life stage) and external (geopolitics or market moves) – can have a huge impact on our emotional resilience. While the calm, evidence-based voice of the adviser should reign supreme, it sometimes clashes with that of the client.
One area where this misalignment shows up is in the so-called ‘fragile decade’ – the five years before retirement and the first five years into drawdown. This is the phase of life where risk tolerance starts to fade.
We asked investors how comfortable they are taking investment risk at the moment. The results show a steady decline in risk tolerance as investors move closer to retirement:
Yet relatively few advisers appear to be adapting their approach to match this heightened vulnerability. Less than a third (31%) say they have a distinct investment strategy for the period immediately before and after retirement.
This matters because poorly timed decisions can have an outsized impact during this stage of life. Investors have less capacity to recover from shortfalls once they begin drawing an income, making both defensive shifts and speculative investment decisions more consequential.
If increased volatility strikes during this period, the risk – and therefore the desire to act – is amplified. And, advisers are currently wary of developing risks – 52% of advisers say they are concerned that multi-asset funds are overly concentrated in US technology shares.
A practical response is for advisers to recommend portfolios that protect against volatility at the time it matters most.
That means building resilience through more diversified portfolios beyond the traditional multi-asset mix (based on a variant of the 60/40 equity-bond portfolio), and considering options that aim to smooth volatility by embracing meaningful exposure to alternative assets.
A more resilient, ‘shock-absorbing’ portfolio – diversified using private assets and alternatives – can help lower portfolio volatility and the emotional reactions to it. For investors in the fragile decade especially, greater diversification may not simply improve risk-adjusted outcomes – it may help them stay invested when markets are at their most challenging.
Things to consider for your client conversations
Ciaran Mulligan
Chief Investment Officer - Individual Life and Pensions
How good investment design reduces the need for reaction
Volatility has a way of making every decision feel more urgent.
In the Compass data, we see that investors often feel the pull to move to safety or explore something different, including newer areas like crypto. Both reactions are very understandable – they reflect a natural behavioural response to uncertainty, where the instinct to do something can feel stronger than the case for stayingthe course.
From an investment perspective, the more important question is how much reacting is really needed in the first place. For me, it comes back to portfolio design.
Well-constructed portfolios are built to work across a range of outcomes, drawing on a broader set of return drivers and balancing risk through the cycle. True diversification sits at the heart of that, particularly when assets don't behave as expected. Smoothing and exposure to a wider set of return sources can also help dampen the emotional highs and lows that so often drive poor timing decisions.
This becomes especially important as investors approach retirement – the ‘fragile decade’ – when tolerance for drawdowns falls and resilience matters more.
When portfolios are designed with diversification, smoothing, and a long-term lens, the need to react can often be reduced. That helps clients stay the course and avoid the behavioural traps that tend to surface when markets feel unsettled.
Methodology
We surveyed 500 men and women from across the UK, aged 18 and over, who actively keep track of their investments, representing both advised and non-advised investors. They are grouped into three categories: advised investors with more than £100,000; non-advised investors with more than £100,000 (described as 'affluent')'; and non-advised investors with less than £100,000 invested (described as 'non-affluent')'. Censuswide carried out the research between 6 and 12 February 2026.
In addition, we surveyed 150 UK-based financial advisers. Research in Finance carried out this survey between 17 and 20 February 2026.
We also carried out in-depth qualitative interviews with four advisers and four investors to help articulate the survey findings. The Agency Partnership conducted these interviews on behalf of M&G between 25 and 27 February 2026. Percentage numbers have been rounded up or down to the nearest whole number.
Also in this issue
Download the full report
In the first edition we set out to understand how investors and advisers are experiencing uncertainty, how decisions are shaped in those moments and what helps clients stay confident in their choices.
