By Gordon Gottsegen
Tariff drama and market swings have more retail investors looking to diversify
The U.S. stock market has been a roller coaster since the start of 2025, and retail investors have been along for the ride. The S&P 500 reached a record high on Feb. 19, then closed in correction territory just a few weeks later on March 13. Meanwhile, concerns about tariffs and U.S. trade policy have kept investors uneasy and market volatility high.
While that may be enough to scare retail investors away from the market, new data shows that’s not happening.
“Retail investors are smarter, more thoughtful and less emotional than I think we give them credit for,” Carl Hazeley, chief analyst at Finimize, told MarketWatch. “The received wisdom is: retail investors are dumb; they sell at the bottom. That just isn’t the case – at least with the people we’re surveying and seeing data from.”
Finimize, an information platform for investors and financial companies, surveyed 2,278 individual investors and released the findings as part of its quarterly Modern Investor Pulse report.
One key finding was that a significant number of investors were reallocating their portfolios in response to market turbulence and geopolitical trade disputes. Of those surveyed, 44% were planning substantial portfolio adjustments soon.
How were these investors changing their portfolios? A growing number of them are taking risk out of their portfolios, with 32% saying they are planning to take fewer investing risks in the next three months. Finimize said this was a 20% jump since last quarter, and the highest proportion of investors taking fewer risks since Finimize started conducting these surveys more than two years ago.
Investors are derisking their portfolios by diversifying their investments. According to the survey, here’s how they’re doing that.
Investors are holding more cash
Of the investors who said they were making significant adjustments to their portfolios, the largest portion (59%) said they were increasing their cash allocation.
“Rather than putting more money into U.S. Stocks, which is the primary way they invest, they’re looking to diversify. So more people are holding on to cash and cash-related investments – that might be money-market funds or CDs,” Hazeley said.
Investors have been expecting interest rates to drop since last year, but Hazeley noted that the pace of these cuts has been slower than initially expected. This gives investors more incentive to hold on to cash, especially if they can earn reliable interest while the stock market remains volatile.
Rotating into new sectors
Past data has shown that retail investors tend to favor tech stocks, but the tech sector has taken a beating this year, with the S&P 500 Information Technology-sector index XX:SP500.45 down almost 8% in 2025.
Finimize’s survey found that tech is still the most popular sector, with 65% of respondents planning to invest. However, 58% of investors said they were looking to rotate into other sectors that they expect to benefit from current policies. Meanwhile, 49% of investors reported interest in the energy sector, and 36% indicated interest in healthcare.
Diversifying crypto beyond bitcoin
Finimize also picked up on a shifting sentiment among crypto investors as well. The survey found that only 57% of investors were confident in bitcoin’s 12-month outlook – down from 67% last quarter. At the same time, planned investment into crypto assets grew from 26% last quarter to 28% this quarter.
Hazeley said that investors are getting less frenzied about bitcoin and now looking to invest in other cryptos – ultimately diversifying their crypto holdings.
“I think there’s a maturing in people’s approach to crypto,” Hazeley told MarketWatch.
He pointed out that many crypto bulls think the Trump administration will boost digital assets by removing regulatory barriers. But bitcoin has become the poster child for this crypto movement, with comments about launching a strategic bitcoin reserve making headlines. Hazeley said that, if investors truly believe in the future of digital assets, they may want to look at the crypto landscape as a whole, not just bitcoin. According to the survey, that’s what they’re doing.
Investing in non-U.S. stocks
Another way investors are diversifying is by buying stocks outside of the U.S. market. Of the survey respondents making changes to their portfolios, 51% said they’re looking to increase non-U.S. exposure.
This comes as European stocks have outperformed U.S. stocks in 2025. The EURO STOXX 50 index XX:SX5E is up around 11% this year, while the S&P 500 is down around 1.8%. On top of that, tariff news has rattled the U.S. stock market. U.S. Treasury Secretary Scott Bessent has said the U.S. economy may enter a “detox period” in response to new economic policies.
Hazeley noted that there is a group of investors – whom he describes as “opportunity hunters” – who are buying European stocks expected to outperform. With European stocks lagging behind the U.S. stock market in recent years, some investors may take the value-investing approach and start looking for deals.
All these different diversification methods show how investors look to play defense during market drawdowns. But while investors are looking to take less risk, they’re not shying away from the market. Eighty-four percent of the survey respondents are still planning to maintain or increase their investment levels in 2025.
-Gordon Gottsegen
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
03-26-25 0851ET
Copyright (c) 2025 Dow Jones & Company, Inc.