QUESTION: How should portfolios prepare for a scenario where both inflation and global tension rise simultaneously?
RESPONSE: In a scenario where both inflation and global tensions rise simultaneously, portfolios should be prepared to manage increased volatility and potential market downturns. Here are some strategies based on the current news data:
- Diversification: Diversifying across asset classes can help mitigate risks. Hedge funds, for example, have demonstrated potential value as tools for diversification and downside protection during periods of macroeconomic and geopolitical instability[1].
- Inflation Hedges: Investing in sectors that traditionally perform well during inflationary periods, such as energy, can be beneficial. Wall Street has been steadily investing in energy as an inflation hedge, especially during periods of increased inflation expectations[2].
- Risk Management: Geopolitical tensions can lead to risk-off behavior in markets, as seen with recent declines in cryptocurrency prices due to heightened geopolitical tensions[3]. Maintaining a balanced portfolio that includes both growth and income-generating assets can provide stability[4].
- Crisis Management: Companies and portfolios should adhere to best crisis management practices to prepare for simultaneous crisis situations. This involves being proactive and having strategies in place to respond effectively to multiple crises[5].
- Monitoring Economic Indicators: Keeping an eye on economic projections and central bank policies is crucial. For instance, the Fed’s economic projections indicate stagflationary pressures, which could impact portfolio performance[6].
By implementing these strategies, portfolios can better navigate the challenges posed by rising inflation and global tensions.
References
[1] April Was The Test: Hedge Funds Passed [Forbes] As traditional markets react sharply to macroeconomic and geopolitical instability, hedge funds are again demonstrating their potential value as a tool for diversification, downside protection and uncorrelated returns. https://www.forbes.com/councils/forbesfinancecouncil/2025/06/17/april-was-the-test-hedge-funds-passed/
[2] Wall Street Is Steadily Investing In Energy As An Inflation Hedge [Forbes] Periods of increased inflation expectations, as seen with the initial tariff announcements, now see both bonds and equities dropping in parallel. https://www.forbes.com/sites/markledain/2025/06/22/wall-street-is-steadily-investing-in-energy-as-an-inflation-hedge/
[3] Cryptocurrency Prices Decline As Market Uncertainty Fuels Risk-Off Trading [Forbes] “Markets are reacting to heightened geopolitical tensions, which tend to trigger risk-off behavior,” he stated. https://www.forbes.com/sites/digital-assets/2025/06/17/cryptocurrency-prices-decline-as-market-uncertainty-fuels-risk-off-trading/
[4] Strategies To Retire Without Running Out Of Money [Forbes] Creating a portfolio that balances both income and growth has worked as an effective fill the gap strategy for many happy retirees. https://www.forbes.com/sites/wesmoss/2025/06/09/strategies-to-retire-without-running-out-of-money/
[5] How Executives Could Respond When Faced With Multiple Crisis Situations [Forbes] An effective strategy for companies when preparing to deal with the impact of simultaneous crisis situations is to adhere to best crisis management practices today. https://www.forbes.com/sites/edwardsegal/2025/06/22/how-executives-could-respond-when-faced-with-multiple-crisis-situations/
[6] Fed holds key rate steady, still sees two more cuts this year [CNBC] Economic projections from meeting participants pointed to further stagflationary pressures, with participants seeing gross domestic project advancing at just a 1.4% pace in 2024 and inflation hitting 3%. https://www.cnbc.com/2025/06/18/fed-rate-decision-june-2025-.html