Trump tariffs: Stocks to bonds—How to rebalance your portfolio for minimum risk? Here’s a 5-point guide

Trump tariffs: The global trade uncertainty triggered by US President Donald Trump's tariff hikes across nations worldwide has resulted in a heightened volatility across financial markets. Global market cues have largely dictated the Indian stock market in 2025 on tariff and counter-tariff announcements. This calls for D-Street investors to assess their portfolios carefully and take informed decisions to minimise the investment risks.

One of the best trading strategies amid global uncertainty and market volatility is to rebalance one's portfolio. Experts have noticed higher inflows to bond markets after US investors dumped assets to protect investments from volatility and risk. Gold emerged as a safe haven option. Let's understand portfolio rebalancing and the best ways to do so in the market current scenario.

What is portfolio rebalancing?

Rebalancing means adjusting the allocation of assets in the portfolio to match the original investment plan. For example: Shifting funds from stocks to bonds if stocks have grown too much in value. One can rebalance every six months or annually. One can also rebalance when the allocation drifts by over five per cent or after major market movements.

“Trump's sudden 90-day China tariff delay in April 2025 wasn't solely for the sake of stock market hysteria—it was the bond market that really made the White House act. While equities dictate what's bought, the bond market dictates how the government borrows," said Justin Khoo, Senior Market Analyst - APAC, VT Markets.

“When bond yields rose rather than declined, it indicated investors were selling Treasuries, not fleeing to safety. With US debt over $34 trillion and yields surging at a rate not seen since 1982, warning signals sounded on Wall Street and the US Fed,” added Khoo.

According to the expert, higher yields raised mortgage and corporate borrowing rates, recession concerns, and challenged the US' long-term fiscal credibility—particularly with debt reaching 120 per cent of GDP. 

The concern was not market volatility but a structural change as the dominance of the dollar erodes. USD reserves worldwide have declined from 72 per cent in 2000 to 58 per cent in 2024, as nations diversify into the yen, franc, and pound.

"De-dollarization is accelerating due to US fiscal recklessness, rising debt, and tariff belligerence. The less dollars countries hold, the fewer Treasuries they are selling. Trump's tax-cut-and-spend agenda is threatened directly when borrowing becomes more costly. In today’s landscape, the bond market—not the battlefield—can dictate geopolitical strategy," said Justin Khoo.

According to domestic brokerages, rebalancing one's portfolio matters because it keeps risks in check, prevents overexposure to volatile assets and also helps investors to stick to long-term goals. Flows from equities to bonds is a sign of rebalancing.

How to rebalance your portfolio? Here's a five-point guide:

1.Portfolio Drift
-Over time, asset values change.
-A 60:40 stock-bond portfolio may turn into 75:25 if stocks outperform.
-This increases risk unintentionally which calls for rebalancing.

2.Review current asset allocation
-Review. Realign. Rebalance.
-Compare it with your target allocation.
-Sell overweight assets, buy underweight ones.
-Use new investments to balance without selling.
 

3.Strategies
-Calendar-based: Rebalance at regular intervals
-Threshold-based: Rebalance when deviation crosses a set limit (e.g., five per cent)
-Hybrid approach: Combine both
 

4.Tax and cost calculations
-Capital gains tax may apply when selling assets
-Account for brokerage fees
-Consider rebalancing within tax-advantaged accounts if possible.
 

5.Market Trends
In the current market scenario, D-Street analysts claim that a significant take away from the recent market trend is the resilience of domestic consumption bluechips. Stocks in financials, telecom, aviation, cement and sections of autos are hitting 52 week highs and are setting new records. According to experts, this trend will continue.

“The market is sending the message that domestic consumption themes will be safer than externally-linked segments during this chaotic global environment,” said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.

Here's an example of rebalancing one's portfolio-

Initial Portfolio:
60 per cent Equity = ₹60,000
40 per cent Debt = ₹40,000
Total 1,00,000

After 1 year:
Equity grows to ₹80,000
Debt grows to ₹42,000
New total = 1,22,000
New allocation = 65.57 per cent Equity/34.43 per cent Debt

To rebalance to 60:40:
Sell 6,784 worth of equity
Invest 6,784 into debt.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.