Wealth advisers reveal ways to avoid bumps

Financial markets have been remarkably resilient this year, with various stock indexes notching new record highs, even as a dizzying number of headlines from Washington, D.C., seem poised to whipsaw investors.

Uncertainty persists about how the economy — and, by virtue, financial markets — will fare, given President Donald Trump’s moves to aggressively slash federal spending, impose tariffs on key trade partners and lay off thousands of government employees, among other measures. In mid-March, with Wall Street investors signaling alarm over a potential recession, the S&P 500 Index fell 10% below the record level set in February.

After two consecutive years of 20% and higher gains for this benchmark, the prospect of more muted returns is a hot topic for money managers, along with how to navigate what could be a bumpy road ahead.

“Diversification is critical right now; it’s very, very important over the long-term, but especially over periods of market uncertainty,” explains Sarah Cammiso, managing director of Cammiso, Wilson and Associates of Merrill Lynch Wealth Management, based in Vienna.

While touting the benefits of diversification and asset allocation may seem cliché, a judicious approach to investment decisions is even more important now, says Joe Montgomery, managing director of investments at The Optimal Service Group of Wells Fargo Advisors in Williamsburg.

“You need to have a bit more selectivity now than the past couple years.”

How should one go about selecting investments this year? Here are some strategies to consider from four Virginia-based advisers:

A changing regime

While investors are making sense of new leadership in D.C., there’s also been a shakeup in the stock market.

A small group of technology stocks, dubbed the Magnificent Seven, did much of the heavy lifting for the U.S. stock market in recent years. At the end of 2024, these stocks — Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla — accounted for 35% of the S&P 500. Their dominance of this index has already eased up this year, which is good news for investors.

So much money poured into a relatively small number of stocks that became overvalued while a lot of other areas of the market went ignored and are now undervalued, explains Tim Call, the president and chief investment officer of Capital Management Corp., based in Glen Allen. Small-cap stocks are “extremely attractive,” followed by mid-caps. “A lot of those stocks are on sale right now.”

Where has Call’s team gone bargain hunting? They’ve invested in shares of regional TV broadcasters, some of which are “exceptionally” undervalued even though they have attractive growth prospects, he says. Then there are the companies that benefit from the artificial intelligence boom, if somewhat indirectly, such as those involved in natural gas production and pipelines or makers of air conditioning units that are crucial for the AI server farms, he adds.

Many companies are offering compelling cash flow, dividend, and growth prospects for investors willing to do the legwork to find them, Call says. “We like getting the best of all worlds when we buy a company, so we’re very excited about the opportunities we see.”

Another appeal to small-cap stocks is related to the prospect of new tariffs on imports from key trade partners, says Jamie Cox, managing partner of Harris Financial Group, based in Chesterfield County. “If interest rates stay stable, which they’re likely to do, small-caps are going to perform really well in this environment because they’re mostly domestic-focused.”

More broadly, investors worried that tariffs will be inflationary can seek out strategic investment opportunities if that materializes, Cox says. Companies in the housing and real estate sectors could be a good place to “hide away,” while domestic automakers are a potential refuge from the potential fallout from tariffs, especially because the auto industry is “ground zero for all of these tariff negotiations,” he adds.

As of early March, President Trump has twice announced and then paused tariffs on Mexican and Canadian products, creating stock market fluctuations.

Like Call, Cox says investors can find some interesting and perhaps unexpected ways to benefit from AI-related productivity gains that could be “massive.” Investors might consider buying shares of retailers that are finding ways to leverage AI to improve the customer experience, he advises, while shares of pharmaceutical companies and other health care providers are a more obvious play.

Still banking on bonds

Another major dynamic in financial markets this year is the fact that the Federal Reserve’s Federal Open Market Committee has signaled it will likely ease up on its rate-cutting strategy. Whereas market participants were expecting central bank policymakers to cut the benchmark federal funds rate four times in 2025, the consensus as of early March was just two rate cuts.

Four rate cuts would have boosted the bond market, and now these assets won’t deliver the growth many investors were expecting, Cammiso says. “But just because that’s no longer true doesn’t mean that you shouldn’t hold bonds.”

Rather, the bond market has historically offered a refuge for investors during periods of volatility in the stock market. And while the yield on the benchmark 10-year Treasury has moved mostly lower this year, it remains well above a long-term average.

Just as there are likely to be opportunities to buy stocks when volatility causes prices to fall, investors should have a similar mindset about putting cash to work in the bond market, Cammiso advises. “We could actually see some opportunities if we see continued volatility because of the uncertainty in the market.”

Investors worried about volatility in the stock and bond markets today have a significant advantage to those who suffered through market crashes in decades past: An even broader array of alternative assets that might provide a valuable hedge.

The democratization of these assets is a big deal, Montgomery says, but sometimes not fully appreciated. “I’m struck by the fact that most people really are not taking advantage of all the opportunities that are out there.”

Montgomery recommends a “gumbo theory” for adding alternative assets to your portfolio. What really makes for a good gumbo aren’t just the proteins, he says, but also the seasonings — and an allocation of up to 20% of your portfolio to alternative assets could be a good recipe during periods of volatility.

Even so, it’s important to be mindful of how various assets move in lockstep, what’s known as correlation, so you achieve diversification rather than what Montgomery jokingly refers to as “worsification.”

Likewise, Cammiso says it’s more accessible to invest in alternative assets like hedge funds and private markets, though most investors can improve their portfolio’s diversification by owning assets like real estate, commodities and precious metals. And these assets can provide an important potential hedge against downside risks in the stock and bond markets, while potentially improving returns, she adds.

Meanwhile, Call says his team likes certain commodities, like lithium and gold, though he says many investors may be better off investing in the stock market, like buying shares of gold miners.

Finally, cryptocurrencies continue to attract interest from investors, and especially because the Trump administration is crypto-friendly — though the speculative nature of these assets persists. Until cryptocurrencies are regulated, it’s “dangerous” to pour too much money into them, Cox says, particularly with the prospect of more volatility in other markets.

“It’s wise for most people to be very, very careful of how they position themselves,” he adds.