Though President Donald Trump’s tariff agenda has been a point of contention, most agree that the new policies have introduced uncertainty into the global economy.
Even with the 90-day pause in reciprocal tariffs on U.S. imports from China, the average tariff rate on U.S. imports is higher than it has been in decades. This has resulted in fears about rising inflation, higher unemployment, economic recession and lower trade volumes.
“The level of the tariff increases announced so far is significantly larger than anticipated,” Jerome Powell, the Federal Reserve chairman, said recently in a speech delivered at the Economic Club of Chicago. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
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Moreover, it is uncertain what will happen at the end of the 90-day pause. No one knows if the U.S. can negotiate mutually beneficial deals with China and other trading partners or if there will even be adequate time to do so. Does that mean more tariffs (and retaliation by those trading partners) in the coming months?
Given the current situation, investors must learn to design uncertainty-proof portfolios that will provide some degree of consistency, and even growth. In that vein, here’s a summary of some portfolio decisions that could provide stability and three fund portfolios for you to consider that reflect these priorities.
Investing in an Uncertain Economy
So, what can you do to make your portfolio resilient amidst economic uncertainty? Here are some asset categories and strategies to consider:
Defensive Stocks
These are stocks that produce stable performance under different market and economic conditions. This stability is usually the byproduct of consistent earnings and revenue that do not ebb and flow with the economic cycle. They are usually in the consumer defensive, utilities and health care sectors.
As of May 22, the S&P 500 has slipped 0.7% year to date. The technology sector has dropped 2.8%, though both of these percentages reflect a recovery from earlier in 2025.
In contrast, the consumer defensive sector has produced a 5.3% return year to date. The utilities sector was a slow starter but is also up 5.3% year to date, with much of that gain happening in the past month. The health care and energy sectors have performed worse than the broader S&P 500 in 2025: Both are down 5.3%. While consumer discretionary stocks are down 6.9%, which is no surprise, the opposite is true for industrials, up 7.1% in 2025.
Safe-Haven Assets
As of May 22, gold and silver are up 25.2% and 14.2% year to date, respectively. This is another entry into the logbook of investors who boast of the safe-haven status of these commodities. Given how rife the fears of recession are, these two commodities can once again help protect investor portfolios from market downturns.
True Diversification
Technology stocks, both in the technology and communication services sectors, constitute more than 40% of the S&P 500, according to U.S. Bank. It is no wonder, then, that the S&P has been closely following the trajectory of tech stocks in recent times.
One way to deal with this issue is to embrace equal-weight S&P 500 exchange-traded funds, or ETFs (where all stocks are given equal weight) over market-cap-weighted ones (where higher market cap equals higher weight).
These equal-weight S&P 500 ETFs track the S&P 500 Equal Weight Index. As of May 22, this index is down 1.1% year to date, which is comparable to the S&P 500, but it happened with much less volatility.
Shorter-Term Fixed-Income Securities
When the Fed paused interest rate cuts in January, I mentioned in an article on fixed-income ETFs how shorter-term fixed-income securities could help provide some measure of stability, since no one was sure about the Fed’s next move.
Nothing much has changed, unfortunately. The Fed is worried that stagflation (higher inflation and unemployment) is a possibility. No wonder the central bank decided to hold the interest rate steady on May 7.
Going forward, would it lower the interest rate to tackle high unemployment or raise it to tackle high inflation? No one knows. Thus, the safety, liquidity and lower volatility of shorter-term fixed-income securities should remain relevant for investors.
International Stocks
Uncertainty about U.S. policy may require that investors look outside of the U.S. when constructing their portfolios.
For example, Morningstar’s Global Markets ex-U.S. Index (an index tracking emerging markets and developed-market ex-U.S. stocks) is up 12.8% year to date. That’s a big leap from the S&P 500’s nearly flat performance.
Though any stagflation in the U.S. will have impacts on other economies (via the contagion effect), a portfolio diversified across markets and regions should still do better than one solely exposed to the U.S. market.
Cash
Many quality stocks will experience mild or significant price dips in an uncertain economy. This provides an opportunity for value-oriented investors to snatch them up at a discount. “The best time to deploy capital is when things are going down,” Warren Buffett has said.
To do this, you will need to have a portion of your portfolio in cash.
[Read: 5 Dividend Aristocrat ETFs to Buy Now]
3 Fund Portfolio Types for an Uncertain Economy
Now that we have covered important portfolio decisions that can help confront economic uncertainty, let’s see how we can construct fund portfolios based on these strategies. Since risk tolerance is a major distinguishing factor among investors, the fund portfolios below include examples for conservative, moderate and aggressive investors.
Conservative Fund Portfolio
The main feature of a conservative fund portfolio is that the size of the portfolio apportioned to low-risk assets, such as bonds, will be relatively high.
20% U.S. stock market: Invesco S&P 500 Equal Weight ETF (ticker: RSP)
10% international stock market: Vanguard Total International Stock ETF (VXUS)
30% U.S. bond market: Vanguard Short-Term Bond ETF (BSV)
20% international bond market: SPDR Bloomberg Short Term International Treasury Bond ETF (BWZ)
10% gold: iShares Gold Trust Micro (IAUM)
10% cash
An alternative approach is to focus on the specific defensive sectors instead of investing in the S&P 500. This will mean forgoing potentially higher returns on the upside, but since this portfolio is for a conservative investor, that may not be an issue. Such a portfolio can look like this:
10% consumer defensive sector ETF: Consumer Staples Select Sector SPDR ETF (XLP)
5% utilities sector ETF: Utilities Select Sector SPDR ETF (XLU)
5% health care sector ETF: Vanguard Health Care ETF (VHT)
10% international stock market: Vanguard Total International Stock ETF (VXUS)
30% U.S. bond market: Vanguard Short-Term Bond ETF (BSV)
20% international bond market: SPDR Bloomberg Short Term International Treasury Bond ETF (BWZ)
10% gold: iShares Gold Trust Micro (IAUM)
10% cash
Moderate Fund Portfolio
A moderate investor will seek a balanced portfolio, with a greater exposure to stocks than the conservative investor and a lower exposure than an aggressive investor. Below is a sample moderate fund portfolio for an uncertain economy:
40% U.S. stock market: Invesco S&P 500 Equal Weight ETF (RSP)
10% international stock market: Vanguard Total International Stock ETF (VXUS)
20% U.S. bond market: Vanguard Short-Term Bond ETF (BSV)
10% international bond market: SPDR Bloomberg Short Term International Treasury Bond ETF (BWZ)
10% gold: iShares Gold Trust Micro (IAUM)
10% cash
A moderate investor can also take the second approach — investing directly in defensive sectors. However, the moderate investor will still want to enjoy the upside potential of other sectors in the S&P 500. Thus, investment in the defensive sectors will be combined with investment in the S&P 500. In that case, an alternative portfolio can look like this:
20%U.S. stock market: iShares Core S&P 500 (IVV)
10% consumer defensive sector ETF: Consumer Staples Select Sector SPDR ETF (XLP)
5% utilities sector ETF: Utilities Select Sector SPDR ETF (XLU)
5% health care sector ETF: Vanguard Health Care ETF (VHT)
10% international stock market: Vanguard Total International Stock ETF (VXUS)
20% U.S. bond market: Vanguard Short-Term Bond ETF (BSV)
10% international bond market: SPDR Bloomberg Short Term International Treasury Bond ETF (BWZ)
10% gold: iShares Gold Trust Micro (IAUM)
10% cash
Aggressive Fund Portfolio
Aggressive investors focus mainly on growth, which means bonds will have only a minor role to play in their portfolios. Below is a sample portfolio for an aggressive investor in an uncertain economy:
50% U.S. stock market: Invesco S&P 500 Equal Weight ETF (RSP)
20% international stock market: Vanguard Total International Stock ETF (VXUS)
10% U.S. bond market: Vanguard Short-Term Bond ETF (BSV)
5% international bond market: SPDR Bloomberg Short Term International Treasury Bond ETF (BWZ)
10% gold: iShares Gold Trust Micro (IAUM)
5% cash
An aggressive investor can also take the second approach, resulting in an alternative portfolio that looks like this:
30% U.S. stock market: iShares Core S&P 500 (IVV)
10% consumer defensive sector: Consumer Staples Select Sector SPDR ETF (XLP)
5% utilities sector: Utilities Select Sector SPDR ETF (XLU)
5% health care sector: Vanguard Health Care ETF (VHT)
20% international stock market: Vanguard Total International Stock ETF (VXUS)
10% U.S. bond market: Vanguard Short-Term Bond ETF (BSV)
5% international bond market: SPDR Bloomberg Short Term International Treasury Bond ETF (BWZ)
10% gold: iShares Gold Trust Micro (IAUM)
5% cash
Rationale for Fund Portfolios
Here are some takeaways regarding the choices made in the above portfolios:
S&P 500 ETFs Over Total Stock Market ETFs
You have probably noticed that I have focused on S&P 500 ETFs — either the market-weighted iShares Core S&P 500 ETF or the equal-weight Invesco S&P 500 Equal Weight ETF — instead of total stock market ETFs.
While the former focus on the 500 leading U.S. companies, or large caps, the latter includes all listed companies, including mid-cap and small-cap companies.
The S&P 500 is less volatile than a total stock market index such as the Dow Jones U.S. Total Stock Market Index. Also, large-cap stocks are less risky because the companies behind them are well-established businesses with strong financials.
Though the total stock market index can outperform (since small caps have more wiggle room for growth), the lower risk and volatility of the S&P 500 provide a major advantage in uncertain economic conditions.
Total International Stocks Over Emerging-Market Stocks
Since there is uncertainty about what will happen to each of the U.S. trading partners after the 90-day pause has ended, it’s a safer bet now (balanced risk/return profile) to have comprehensive exposure to all international markets.
ETFs Over Index Funds
I have focused on ETFs rather than index funds because the former are more liquid, transparent about holdings, tax-efficient and provide more investment choices.
Remember: Sample Portfolios Are Illustrations, Not Recommendations
The portfolios above should be seen as illustrations of how you can apply the six points highlighted in the previous section, rather than action points. For example, if a factor like expense ratio is very important, you might need to select other ETFs instead of the ones in these portfolios.
Thus, prior to implementing any changes to your portfolio, be sure to discuss these ideas with your financial advisor to ensure alignment with your personal and financial goals and objectives.
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Investment Portfolios for an Uncertain Economy originally appeared on usnews.com
