How to Protect Your Portfolio from Geopolitical Shocks>

Geopolitical Risk: From Background Noise to Foreground Signal

Geopolitical risk encompasses events such as armed conflicts, government sanctions, regime changes, and diplomatic standoffs that can disrupt global markets. Historically considered background noise, these risks now sit front and center in investment decision-making.

As we move through the fiscal reckoning in the U.S., investors face a shifting macro environment shaped by spending cuts, tariffs, and recessionary pressures. Following years of stimulus and deficit spending, the U.S. is transitioning from a "two feet on the gas" economy to a more austere fiscal policy. The implications may be recessionary, with a potential rise in unemployment and pressure on corporate earnings. We're starting to see this reflected in forward guidance, or lack thereof, coming out in the Q2 earnings season.

The Top Geopolitical Risks Shaping Markets

The top geopolitical risks of 2025 are redefining investment playbooks:

• Escalating Global Conflicts and Instability: Armed conflicts across the mid-east and Eurasia have disrupted energy markets and initiated renewed pressure on global inflation.
• Rising Nationalism and Protectionism: The trend towards protectionist trade policies includes increasing trade barriers, tariffs, and disruptions to global trade. While U.S. tariffs may have de-escalated recently, expect materially higher tariff policies than the market has been accustomed to.
• Capital Flows and Currency Volatility: Significant shifts in capital flows with some investors potentially moving away from U.S. dollar-denominated assets, including those that have historically been considered safe havens during market turmoil. Capital seems to be flowing towards currencies and markets where policy may be more predictable per se.

How Geopolitical Risk Impacts Investment Performance

Geopolitical shocks can lead to immediate & intense market volatility swings and long-term economic shifts. For instance:

• Russia's invasion of Ukraine triggered a global energy realignment and commodity rally.
• Brexit reshaped Europe's financial services landscape.
• U.S.-China tariffs in 2018-2019 disrupted supply chains and forced revaluations across sectors.

Such events often result in capital flight, increased funding costs, and shifts in corporate investment strategies.

So, does geopolitical risk matter for corporate investment? Absolutely. It alters incentives, narrows planning horizons, and redirects capital towards jurisdictions that are perceived as safer or more stable.

And how does political risk affect foreign investment? It often causes institutional investors to reduce exposure, increase cash allocations, or reweight portfolios toward hard assets and geopolitically insulated markets.

The market activity we saw in early April exemplifies how this volatility rattles investors. U.S. equity markets saw extreme volatility triggered by newly announced tariffs under emergency economic powers. The sweeping policy changes led to a rapid selloff, driven by fears of global retaliation, supply chain disruptions, and economic fallout. Markets briefly stabilized after the White House paused most of the tariffs, leading to a dramatic rebound. However, investor sentiment remained fragile, with ongoing concerns about inflation, corporate earnings, and geopolitical uncertainty highlighting how quickly market mood can shift in response to policy developments.

Strategies to Protect and Diversify Your Portfolio

While predicting every crisis is impossible, investors can adopt strategies to enhance portfolio resilience:

• Go Beyond the Conventional 60/40 Allocation: Investments in real assets, including gold and other commodities, often retain value or appreciate during global instability.
  • David Schassler offers investors a guidebook of how to implement these strategies within a comprehensive asset allocation via the VanEck Wealth Builder Plus and Wealth Builder Core Portfolios.
  • Investors looking to exclusively add real assets to their portfolio may also be intrigued by the VanEck Real Assets ETF (RAAX) .
• Hedge with Scarce Assets : Gold's store-of-value properties allow it to remain a reliable hedge against geopolitical shocks. Bitcoin, while more volatile, is increasingly viewed as a potential store of value.
  • The VanEck Merk Gold ETF (OUNZ) offers investors exposure to the spot price of gold and the unique option to take physical delivery of that exposure.
  • The VanEck Bitcoin ETF (HODL) the most cost-effective product that offers exposure to the spot price of Bitcoin since VanEck has waved the entirety of the fee ^* .
• Diversify Geographically : Spread investments across multiple countries and regions to reduce centralized exposure to any single geopolitical event.
  • VanEck emphasizes the importance of geographic diversification and has highlighted opportunities in markets like India for some time now due to the robust structural growth potential and macro tailwinds. To gain access, consider the VanEck Digital India ETF (DGIN) and VanEck India Growth Leaders ETF (GLIN) .

At the top of the year, Jan van Eck urged investors to diversify their equity exposure and seek hedges for looming inflation risk. That guidance was reiterated in his Q2 outlook . The remainder of 2025 may bring additional volatility, potentially creating attractive entry or re-entry points for buyers of U.S. equities; however, even the best investors may find market timing challenging.

In the recent past, U.S. stocks have been the only place to outperform—largely attributed to the overweight large-cap tech stocks that have delivered tremendous returns and resilience. Is this the case going forward? If mean reversion tells us anything, probably not. This sentiment underscores the importance of global diversification.

How Smart Investors Stay Grounded During Geopolitical Shocks

Emotional responses to geopolitical events can lead to suboptimal investment decisions. History shows that investors who maintain discipline during turbulent times often achieve better long-term results. Periods of elevated uncertainty and market dislocation can create compelling entry points for long-term investors. Resisting the urge to react impulsively and remaining invested through cycles is one of the most effective ways to build long-term wealth.

One of my favorite quotes articulates that time in the market beats timing the market.

Conclusion: Preparing Your Portfolio for Volatility

Geopolitical risk is nothing new, but the convergence of trade disputes, military tensions, and pivotal elections in 2025 is testing investor resolve. Navigating these challenges requires a balanced perspective: protecting against downside risk while staying open to the opportunities volatility can bring. As Jan van Eck noted in his recent outlook ,

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