Advisors point to changing inflation expectations and a higher perceived risk of volatility as the main reasons behind the defensive posture. Only 42% of RIAs now expect inflation to stay below 3% in a year, down sharply from 69% the prior quarter. Half of the respondents said they expect stock-market volatility to be higher in the coming 12 months than it was in 2024. Those sentiment moves are driving tangible portfolio adjustments.
These adjustments reflect a strategic shift. Advisors are responding not only to the changing inflation expectations and market volatility but also to the need for more balanced and resilient portfolio.
What’s happening looks less like panic and more like housekeeping. In the fourth quarter, about a third of advisory firms put more money into international stocks. Inside portfolios, managers have been cutting back positions that ballooned during the rally. Additionally, they are redeploying some of that capital abroad. Others are making smaller changes on the bond side, pushing maturities out just enough to give portfolios breathing room if growth fades. It’s a set of quiet, practical moves tied to worries about inflation and market swings. And not a bet that the bull market is finished.
While these moves may seem subtle, they reflect a deeper shift in how advisors are thinking about the future. Rather than reacting to the immediate market trends, they’re positioning portfolios for a variety of possible scenarios. Each one has a strong focus on flexibility and long-term stability
These are not just the comments, but some factors even contribute to this cause. Risk-management thinking is also influencing fixed-income decisions. Some firms said they have “moderately” extended duration to give portfolios more cushion if employment weakens and a growth shock hits. The rationale is pragmatic, duration can act as a buffer in recessionary scenarios, and advisors are positioning for a range of outcomes rather than betting solely on continued expansion. What will be the next move?
These portfolio adjustments reflect a broader shift in risk-management strategies. Advisors are proactively recalibrating for potential volatility rather than simply reacting to short-term market fluctuations
In the coming years, advisors are not unanimous in forecasting a downturn, but concern has risen, 23% now report being “extremely” or “very” worried about the chance of a major equity market drop, up from 16% in the prior quarter. That uptick in worry, combined with uncertainties over job growth, tariffs, and the sustainability of big-tech and AI-related spending, helps explain why many RIAs favor calibrated defense over dramatic shifts like moving entirely to cash.
