Set-and-forget investing no longer works as market shocks rewrite the rules

Sebastian Mullins

Investors relying on the same defensive assets to protect their portfolios through every market downturn risk being caught out, with recent geopolitical events exposing how quickly traditional investment playbooks can become outdated, according to Schroders.

Sebastian Mullins, Head of Multi-Asset and Fixed Income at Schroders, said the long-held belief that government bonds or gold would reliably offset equity market volatility no longer reflects today’s investment environment.

“For decades, investors could rely on a relatively stable relationship between growth assets and traditional defensive assets,” said Mullins.

“That world has changed. Persistent inflation, geopolitical conflict and supply-side shocks have created a market where the assets that protected portfolios in one crisis may fail in the next.”

Mullins said investors have experienced first-hand how different crises produce very different market outcomes.

“During the market uncertainty of 2025, gold and international assets performed well as investors moved away from the US. Yet when conflict escalated in the Middle East this year, the market response was almost the opposite. The US dollar strengthened, capital flowed back into US assets and gold failed to provide the protection many investors expected.

“The lesson isn’t that gold no longer has a role. It’s that investors need to understand what is driving each market event rather than assuming the same assets will always behave the same way.

“The same principle applies to fixed income. There is still an important role for government bonds, but investors can no longer assume they’ll always offset equity market weakness.

“Active management matters far more in today’s environment than it did during the era of ultra-low inflation and near-zero interest rates.”

Mullins said investors should broaden their definition of diversification beyond the traditional mix of shares and bonds.

“Modern portfolio construction isn’t about finding one perfect hedge. It’s about building a range of exposures that respond differently depending on what’s driving markets.

“That may include commodities during supply shocks, currencies during geopolitical events, or alternative assets that have genuinely different return drivers.”

He said Schroders’ own investment decisions over the past year reflect this shift.

“As geopolitical tensions and supply-chain risks intensified, we reduced exposure to assets that had traditionally been viewed as defensive and increased exposure to broader commodities that we believed were better positioned for an inflationary supply shock,” he said.

“As conditions evolved, we shifted again. Effective risk management today is about adapting to changing market conditions, not relying on a static portfolio.

“Looking ahead, inflation cycles, geopolitical fragmentation and supply disruptions are likely to remain defining features of markets.

“The investors who navigate this environment most successfully won’t necessarily be those who pick the best-performing asset class. They’ll be those prepared to continually reassess how they protect their portfolios,” he added.