Why is asset allocation important during periods of market stress?
Equities fuel growth, fixed income provides stability, and gold offers downside protection in uncertain times. Each asset class performs differently under varying market conditions, so what does this mean for you? Read to know….
JioBlackRock advantage
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Published on 20 May 2026
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3 min read
Having a diversified portfolio can be a buffer against significant losses, because usually not all assets are exposed to the same risks simultaneously. An asset allocation strategy becomes even more critical during periods of market stress.
The table below shows an example of this in action:
| Period | Asset - A | Asset - B | 50:50 mix of A &B |
|---|---|---|---|
| Year 1 (Return) | -50% | -2% | -26% |
| Year 2 (Return) | +80% | +5% | +43% |
| Year 3 (Return) | +40% | +15% | +28% |
| Aggregate 3 years | +26% | +18% | +34% |
- Asset A: high return, high volatility
- Asset B: lower return, lower volatility
- 50:50 portfolio: balanced risk and enhanced return
As the table shows, Asset A’s higher return comes with significant volatility, including potential losses of up to 50% of the initial investment.
Asset B, meanwhile, offers a lower total return but reduced volatility.
Combining Asset A and Asset B in a 50:50 mix, however, achieves a portfolio return of 34% over three years. So how does this happen?
1. Reduced loss: incorporating a lower-risk instrument reduces losses. While Asset A fell 50% at the end of the first year, the 50:50 portfolio was only down 26%. The greater the loss, the more challenging it is for the portfolio to recover.
2. Lower correlations: although Asset A and Asset B move in the same general direction, the degree of change differs. For instance, A has a higher return in the second year, whereas B excels in year three.
3. Rebalancing: the mixed portfolio in the example above rebalances its allocation to maintain a 50:50 ratio at the end of each year. So at the end of the first year, when Asset A underperformed relative to Asset B, the owner sold portions of Asset B and purchased more of Asset A. That positioned the portfolio to benefit from Asset A’s recovery the following year.
Bottom line: Turning market stress into a strategic opportunity
JioBlackRock Investment Adviser is SEBI Registered Investment Adviser (RIA) which uses BlackRock’s Aladdin technology and real-time data analytics to identify market trends early and make tactical adjustments, either to capitalise on emerging opportunities or defend against potential threats. Importantly, asset allocation is not a one-size-fits-all; it is tailored to individual risk tolerance, investment objectives and investment horizon. A personalised strategy helps cushion the impact of market stress without compromising your peace of mind.
Questions you might have
This article is for educational purpose only.
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