Tag: diversification

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Geopolitical Risks and ETFs for diversification

Geopolitical risks—whether from armed conflict, trade disputes, sanctions, or shifting alliances—can quickly ripple through global markets. For investors, the challenge is not predicting every headline, but building portfolios resilient enough to withstand them. Exchange-traded funds (ETFs) offer a practical and efficient way to manage these risks through diversification, liquidity, and targeted exposure to major economic sectors.

As Geopolitical Risks rise, ETFs may offer opportunities for diversification.
As Geopolitical Risks rise, ETFs may offer opportunities for diversification.

Energy and Financial Sectors

Sector ETFs, in particular, allow investors to adjust allocations in response to evolving geopolitical conditions. For example, during periods of conflict or supply disruption, energy prices often rise. An ETF like the Energy Select Sector SPDR Fund (XLE) provides diversified exposure to major U.S. energy producers and services firms. Rather than betting on a single oil company, investors gain broad participation in the sector. ETFs like this help reduce company-specific risk while maintaining exposure to a potential geopolitical tailwind.

Financials also react differently depending on the nature of the crisis. Rising defense spending or inflationary pressures may boost interest rates, supporting bank profitability. The Financial Select Sector SPDR Fund (XLF) offers diversified access to large U.S. banks, insurers, and capital markets firms. In contrast, sanctions or global slowdowns can pressure multinational lenders, underscoring why diversified sector exposure from ETFs is preferable to concentrated stock positions.

Other Sector ETFs

Technology presents a more nuanced case. Heightened tensions—particularly between major economies—can disrupt semiconductor supply chains and global trade. Yet long-term digital transformation often continues regardless of short-term instability. The Technology Select Sector SPDR Fund (XLK) spreads exposure across hardware, software, and IT services leaders, balancing cyclical and structural growth drivers.

Beyond these sectors, investors can use utilities, healthcare, consumer staples, or defense-focused ETFs to dampen volatility further. Defensive sectors such as the Utilities Select Sector SPDR Fund (XLU) and the Consumer Staples Select Sector SPDR Fund (XLP) often hold up during uncertainty because demand remains relatively stable.

Conclusions of ETF investing to manage geopolitical risks

Ultimately, ETFs help address geopolitical risk not by eliminating volatility, but by potentially reducing it through diversification into key sectors. Their transparency, intraday liquidity, and broad diversification allow investors to rebalance efficiently as conditions evolve. In a world where geopolitical shocks can emerge overnight, sector ETFs provide a flexible toolkit for navigating uncertainty without abandoning long-term investment discipline.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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Gold and Silver as Safe Haven? Volatility is Back

Investors often turn to gold and silver in times of macroeconomic uncertainty. Market participants often view these precious metals as traditional “safe haven” assets that preserve value when equities falter or inflation worries spike. In early 2026, this narrative took center stage. Both metals surged to multi-year highs amid geopolitical tensions, a soft U.S. dollar, and rising inflation expectations. However, the last week of January 2026 brought a stark reminder that even safe havens can experience intense volatility. In this post, we view this risk through the lens of liquid instruments in exchange-traded funds (ETFs).

📊 Glimpse at GLD & SLV Performance

GLD and SLV are two ETFs that track the spot price performance of gold and silver. SPDR Gold Shares (GLD) is the largest gold ETF. It is widely used to proxy gold price exposure. Similarly, iShares Silver Trust (SLV) is the premier silver ETF, reflecting broader investor positioning in silver. Over the week ending January 31, both ETFs experienced sharp swings. GLD dipped from recent highs, while SLV posted even larger percentage moves. This dip reflected silver’s historically higher volatility and tendency to amplify market sentiment shifts.

📉 Late-January ETF Safe Haven Volatility

Data from the week of January 12–18 shows how sharply these assets have been moving.

  • GLD (Gold) demonstrated an intra-week range of about ~2.35 %. Its annualized volatility of ~13 % over this week indicated relatively contained swings for gold historically—even as spot prices rose.
  • SLV (Silver) exhibited an intra-week range above ~11.5%. Its annualized volatility above ~75 % over this week underscored silver’s tendency for much larger price oscillations.

In other words, silver’s volatility, especially in extreme market episodes, can be much more than that of gold, reinforcing the idea that SLV carries greater short-term risk for traders and investors alike.

📌 Historical Risk Metrics for a Safe Haven

Longer-term risk figures support this short-term pattern.

Gold and Silver as a safe haven? Volatility is back.
Gold, Silver, U.S. Stocks, and Aggregate Bond ETF performance over the last 12 months, as of January 30, 2026. Source: https://www.etfreplay.com/charts
  • Silver ETF SLV has historically shown higher volatility compared with gold ETFs, meaning silver prices tend to swing harder and more often than gold when markets shift sentiment or macro drivers change.
  • Gold ETF GLD’s lower volatility has often made it a preferred choice for risk-averse investors seeking stability.

🧠 What This Means for Investors

The late-January sell-offs and reversals — where precious metals retreated significantly after touching record highs — illustrate that safe-haven status doesn’t equate to smooth performance in every market environment. Sharp reversals driven by shifts in monetary policy expectations or risk appetite can quickly compress profits and widen losses, particularly for more volatile assets like silver.

In short, gold and silver may still play roles as portfolio diversifiers or long-term hedges — but recent prices in GLD and SLV remind us that volatility is very real, and risk metrics matter when evaluating these in a diversified portfolio.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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Using diversification to deal with market volatility

A recent Wall Street Journal article discussed the behavioral aspects caused by market volatility. The article nicely summarizes the long term view of the market. Based on historical analysis, there is a 2% drop in the stock market every 33 trading days, on average. With the Dow at its current levels, that is a 520 point drop every 6 weeks or so.

If this amount of volatility is “keeping you up at night”, perhaps your portfolio isn’t properly diversified? I touched on diversification using bonds in my last post, and will discuss diversification more broadly now.

So, what is diversification?

Simply put, diversification is not allowing for concentrated positions in a portfolio. For example, if you have a portfolio of a single stock, this portfolio is not diversified. But, as more stock is added from different companies in different sectors, investors can often reduce portfolio risk. However, market risk remains, as shown below.

Increasing the number of stocks reduces risk, as measured by the standard deviations of periodic returns.
Increasing the number of stocks reduces risk, as measured by the standard deviations of periodic returns.

Going beyond market risk for wider diversification and reduced volatility

A simple approach to managing portfolio risk is through mutual funds or exchange traded funds. Both investment vehicles hold a basket of many securities, eliminating the need to hold individual stocks to properly diversify. Here at ETFMathGuy, we are advocates of ETFs (exchanged traded funds), because ETFs have better tax efficiency, (usually) lower expense ratios, and often trade commission-free.

Now, most individuals also invest outside the stock market. So, they seek diversification by investing in other asset classes too. For instance, bonds tend to “zig” when stocks “zag”. To see an example of this approach, consider the conservative Fidelity optimal portfolio by ETFMathGuy published for March 2019, and shown below.

Taxable portfolio using Fidelity commission-free ETFs reduces volatility

Assuming an investor buys-and-holds this portfolio from March 4, 2019 through May 21, 2019, the growth of $100 appears below. Notice that the large drop at the end of this time period. This volatility, shown in blue as the S&P 500 ETF (ticker: IVV), is largely unnoticeable in the ETFMathGuy optimal portfolio, shown in green.

Comparing volatility of the conservative ETFMathGuy optimal Fidelity portfolio to the S&P 500 ETF
Comparing volatility of the conservative ETFMathGuy optimal Fidelity portfolio to the S&P 500 ETF

Digging into the statistics reveals compelling information about the volatility. The annualized volatility over this period of the ETFMathGuy portfolio is 4.0% versus 11.0% for the S&P 500 ETF. Clearly, diversification across asset classes (like stocks and bonds) can be a very effective way to manage volatility.


ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.