5 Ways To Use Portfolio Diversification To Ease Market Anxiety In 2025

According to a recent study conducted by Talker Research for Traditional Medicinals, the average person feels their head “spinning” from stress 156 times per year, or about three times per week, and experiences brain fog with roughly the same frequency. The survey, which polled about 2,000 adults, also discovered that 41% of respondents were currently experiencing their peak stress levels for the year, and about a quarter (26%) fear their stress might increase by year’s end.

Despite the inner turmoil, a surprising 45% of respondents have never used stress as the sole reason for taking a mental health day or sick day from work. A duck may look peaceful sitting in water, but its legs often churn beneath the surface. In other words, it’s difficult to know how others feel, no matter how calm they appear.

Though 2024 was a year in which a sizable number of folks admitted feeling pressure, the numbers suggest many of them don’t know how to ease it. What can they do to sleep well at night in 2025?

Breaking Bad

Thirty-eight percent of survey participants believe that 2024 was more stressful than 2023. In descending order, the primary anxiety triggers listed were finances (35%), the economy (28%), physical health (25%), the 2024 presidential election (20%), and other world issues (19%).

Americans reported this stress manifesting through sleep interruption (42%), irritability (37%), fatigue (34%), headaches (33%), and feeling worried or paranoid (31%).

A large portion (71%) seem to be aware that their mental health would benefit from less stress. Some report surface-level coping mechanisms, such as listening to music (47%), watching TV shows and movies (39%), or sipping on a hot cup of tea (17%). The group is roughly split when looking for more long-term overall wellness strategies vs. quick alleviation, but about half of all respondents (47%) hope for stress-reduction options that fit into their busy schedules.

Getting Better

Inflation has also created genuine challenges for families trying to meet their budgets. According to data from Statista, prices increased by approximately 20%, while wages only rose by 17% from the beginning of 2021 to late 2024. With such a steep decline in real purchasing power, it can be daunting to save for retirement. Other inflationary hurdles may have been higher tax burdens and increased barriers to credit and investment.

However, wages are now increasing at a fairly steady pace. Marketplace reports that average hourly earnings growth surpassed the rate of price growth back in May 2023, which means Americans’ real earnings have been improving on aggregate. So, while some are still climbing out of the hole, the wind is at their back, and these sturdy fundamentals suggest possible continued alleviation.

The Power Of A Diversified Portfolio

While it’s impossible to eliminate every anxious feeling preoccupying Americans, investors can alleviate some market fears by taking advantage of portfolio diversification. Most financial plans aim to maximize potential growth while limiting risk, and one popular tactic to accomplish that is diversification. By putting “eggs” in several baskets, investors can seek upsides to market performance while giving their portfolio some buffer against sudden downward swings. There are several ways to diversify investments.

Security Diversification: The most foundational strategy. It reduces risk by increasing the number of different stocks in the portfolio. The trick is finding a balance between too few and too many.

Sector Diversification: Making sure to invest in a variety of industries. For example, the 2008 banking crisis would hit differently for someone invested solely in bank stocks vs. those also invested in utilities, transportation, technology, health care, and other sectors.

Industry Diversification: Some securities are categorized within the same sector without sharing a common business focus. For example, a company that builds computer components is much different than one developing software, despite both residing in the technology domain. Thus, diversifying investments within the same sector can sometimes be impactful.

Capitalization Diversification: Market capitalization is defined as the price of a company’s stock multiplied by the number of outstanding shares. A large-cap stock typically refers to a company with a market cap of at least $10 billion, mid-cap stocks fall in the $2-$10 billion range, and small-cap stocks are between $250,000 and $2 billion. Typically, the potential for high returns grows as the market cap shrinks, but so does the risk. Holding stocks from all three categories is one way to allow for earnings with less exposure.

Geographic Diversification: Some feel overall risk decreases when investors hold both domestic and international stocks in their retirement portfolios. That said, it should be noted that investing in global stocks usually entails greater risks and may require a certain level of knowledge and experience.

Investment Strategy Diversification: The three most well-known investment strategies tend to perform cyclically, each taking turns outperforming the others. Value investing seeks out companies that the current market appears to undervalue, growth investing attempts to identify companies that may flourish faster than the current market, and index investing is a neutral approach that tries to replicate a market index.

Future retirees would be well served to review their portfolios within the context of this framework. Is it diversified enough or overly concentrated? The more proactive you are now, the more time you’ll have to make the changes that could potentially protect your portfolio and peace of mind in the future.

Bottom Line

No investor can control the market, so let go of that expectation. Americans are not alone in feeling anxious about the economy, finances, and their portfolios. Stewing in uncertainty is not productive, and relying on music or a hot cup of tea, though calming, will only go so far. Instead, investors would be better served to leverage the power of portfolio diversification to help navigate life’s financial reefs and shoals and raise their chances for smoother sailing in 2025.