Checklist for Managing Geopolitical Risks in Portfolios

Geopolitical risks can significantly impact your investments, from market volatility to sector disruptions. Here’s how to prepare and protect your portfolio:

• Diversify across regions, sectors, and asset classes to reduce exposure to any single risk.
• Monitor geopolitical events using tools like the Geopolitical Risk Index (GPR) or BlackRock Geopolitical Risk Indicator (BGRI).
• Assess geographic and sector vulnerabilities in your portfolio, focusing on operations, revenues, and supply chains.
• Invest in stable sectors like healthcare, utilities, and safe-haven assets (e.g., U.S. Treasuries, gold).
• Stress test your portfolio against potential geopolitical scenarios to uncover weak spots.
• Stay calm during crises and avoid reactionary decisions. Stick to your long-term investment goals.

What Geopolitical Risk Means for Your Investments

Defining Geopolitical Risk

Geopolitical risk refers to events like wars, terrorism, political tensions, trade disputes, and regulatory changes that can disrupt markets and demand attention in today's interconnected economy.

These risks are often rare, unpredictable, and long-lasting. Unlike traditional market risks, which tend to follow patterns, geopolitical events can arise suddenly and leave a lasting imprint, making them challenging to evaluate or predict accurately.

Geopolitical risks aren’t limited to military conflicts. They also include trade wars, sanctions, and regulatory shifts that disrupt global supply chains. Political instability can halt production, damage infrastructure, or close ports, leading to delays and higher costs.

"What has happened in the wake of hyper-globalization in the 1990s -- when not just the West, but even countries like China and Russia, became integrated into global financial markets and supply chains -- is that there emerged these invisible choke points like the US dollar-based financial system, like global semiconductor supply chains and energy supply chains, where one country has a dominant position and there are few, if any, substitutes." - Edward Fishman, senior research scholar at Columbia University's Center on Global Energy Policy

How Global Events Impact Your Portfolio

Geopolitical events can shake up investments through market volatility, currency shifts, and disruptions in specific sectors. Understanding these dynamics helps you see how global events, even those seemingly far away, can ripple through your portfolio.

Market volatility is often the first noticeable effect. For instance, rising geopolitical tensions typically reduce stock valuations by about 2.5%. This drop isn’t confined to the countries directly involved but often spreads through globally connected markets.

Currency swings add another layer of uncertainty. When geopolitical risks rise, foreign investments tend to slow, and currency fluctuations can eat into international returns.

Sector-specific impacts also vary widely. For example, health care and utilities tend to be less affected by geopolitical risks. On the other hand, technology companies often face unique challenges, such as technological decoupling, where nations reduce reliance on each other’s tech due to rising tensions.

Interestingly, markets can react as strongly to the anticipation of events as to their actual occurrence. This means your portfolio might experience turbulence simply from the possibility of conflicts or policy shifts.

Another major concern is supply chain disruptions. Conflicts and sanctions can interrupt the flow of critical goods. For example, the supply chain analytics market is projected to grow significantly, from $9.2 billion in 2024 to $26.9 billion by 2032, as businesses seek better tools to navigate these challenges.

"Companies have gotten by largely over the last several decades, not having deep geopolitical knowledge at the top. And I think that's because the assumption was that we were just living in an open global economy and that, you know, you could find investments with the best return, regardless of geopolitical factors. That's clearly not the case today." - Edward Fishman, senior research scholar at Columbia University's Center on Global Energy Policy

Portfolio Geopolitical Risk Assessment Checklist

Now that you’ve seen how geopolitical events can shake up investments, it’s time to dig into your portfolio and assess its exposure. A thorough evaluation is key to identifying weak spots and gauging potential risks.

Review Your Geographic Exposure

Start by mapping out where your investments are exposed geographically. But don’t stop at just a company’s headquarters - dive deeper into its operations, revenue sources, and supply chains.

For example, if a U.S. tech company generates 40% of its revenue from China, that’s a substantial exposure. Similarly, a European automaker might be sourcing semiconductors from Taiwan, rare earth metals from Africa, and assembling vehicles in Mexico. Each of these steps carries its own geopolitical risk.

Emerging markets can add another layer of complexity. They often offer growth opportunities but come with risks like political instability, regulatory changes, and currency fluctuations.

Pay close attention to industries with large international footprints, especially those operating in politically volatile regions. Annual reports and investor presentations are great tools to break down geographic revenue and operational risks. Once you’ve identified these, move on to sector-specific challenges.

Check Sector Vulnerability

Next, assess how different sectors in your portfolio might be affected by geopolitical events. Some industries are more vulnerable than others.

Take the technology sector, for instance. Rising tensions between nations can lead to technological decoupling, where countries limit their reliance on each other’s tech. A real-world example: the 2019 U.S. ban on Huawei caused the company’s smartphone business to lose $30 billion annually. Meanwhile, competitors like Samsung saw a nearly 60% increase in operating profit in 2020, and Apple became China’s top smartphone brand in 2021.

The energy and commodities sectors are also highly sensitive. Russia’s invasion of Ukraine disrupted global fertilizer supplies, impacting the food industry. While some companies, like Dangote Fertilizer, benefited, others struggled with supply chain issues.

Even industries that seem stable can face unexpected challenges. For instance, when sanctions hit Russia, Airbus worked to shield the EU from losing access to Russian titanium while simultaneously seeking alternative suppliers.

"Companies are on the front lines of today's geopolitical and national security challenges." - Lisa O. Monaco, U.S. Deputy Attorney General

Scenario planning can help you anticipate how trade wars, sanctions, or conflicts might hit different sectors. Use this to build a clearer picture of your portfolio’s vulnerabilities.

Calculate Your Risk Levels

Now, bring it all together - geography and sector insights - to quantify your overall risk. Use reliable tools to measure geopolitical risks and their potential market impacts. For instance, over the past 30 years, periods of high geopolitical risk have been linked to lower equity returns and greater volatility, making these evaluations essential.

The Geopolitical Risk Index (GPR) is one way to track these risks. It measures global tensions by analyzing news coverage and creates a monthly score you can compare against your portfolio’s performance. For a broader view, combine the GPR with the World Uncertainty Index (WUI), which captures uncertainty in economic reports.

Another useful tool is the BlackRock Geopolitical Risk Indicator (BGRI), which provides real-time market sentiment. For example, in April 2025, BlackRock highlighted how trade actions during the second Trump administration pushed the U.S. effective tariff rate to 20%, its highest level since the 1930s.

Private equity portfolios provide a helpful benchmark - on average, 20% of their assets are exposed to geopolitical risks. If your portfolio’s exposure is significantly higher, it might be time to consider rebalancing.

Finally, analyzing the correlation of squared standardized residuals across your assets can reveal how geopolitical shocks might trigger synchronized market movements. Tools like this can help you understand the ripple effects of global events on your investments.

Text-based measures, like news analysis, often react faster to geopolitical changes than traditional ratings. Staying on top of breaking news and expert commentary is essential for timely and effective risk management.

Creating Your Geopolitical Risk Management Plan

After identifying potential geopolitical risks, the next step is crafting a plan to manage them. While some risks are unavoidable, having a structured approach can help you respond effectively to global events as they unfold.

Find Your Main Risk Factors

Start by pinpointing which geopolitical events could most significantly impact your portfolio. This step ensures that your risk management efforts are focused where they matter most.

Rank risks based on likelihood and impact. Develop a simple system to evaluate the probability of an event and the potential damage it could cause. For instance, if 30% of your portfolio is tied to Chinese markets, U.S.-China trade tensions should take precedence over instability in a country where you have minimal exposure.

Focus on actionable risks. It’s not practical to obsess over risks you can’t control. Instead, prioritize situations where you can implement a clear response. For example, if you’re monitoring European energy security, keep an eye on indicators like natural gas prices, pipeline usage, and diplomatic talks. When these metrics signal trouble, you’ll know it’s time to act.

Balance data with expert insights. While economic data is critical, expert analysis and geopolitical commentary can provide valuable context. Angela Rodell, CEO of the Alaska Permanent Fund, highlights this balance:

"We want to make sure we are not overreacting to short-term noise and taking advantage where we have conviction around any particular geography."

Lastly, focus on policy over politics. Political rhetoric often causes market swings, but actual policy changes are what truly affect your investments.

Once you’ve ranked your risks, shift your attention to strategies for minimizing their impact.

Apply Risk Reduction Methods

With your primary risks identified, it’s time to implement strategies to limit their effects. A diversified portfolio is one of the most effective ways to manage geopolitical uncertainty.

Diversify across asset classes, regions, and sectors. This reduces the likelihood that a single event will severely impact your portfolio.

Invest in assets that perform well during crises. Safe-haven investments like U.S. Treasuries, German Bunds, and Swiss bonds often attract demand during periods of global tension. Gold is another traditional hedge, as many investors increase their allocation to precious metals during uncertain times. John Bilton of J.P. Morgan explains:

"We favor bonds to protect portfolios from growth shocks and real assets to protect from inflationary risks. We note that a balanced portfolio is favorable to hiding in cash even during periods of heightened tension."

Adopt active management strategies. This doesn’t mean constant trading but being flexible enough to adjust allocations when major geopolitical events occur. For example, the U.S.-China tariffs in 2018-2019 disrupted supply chains across several sectors, while Russia’s 2022 invasion of Ukraine led to a global energy shift and a commodity price surge.

Build cash reserves for flexibility. Holding cash allows you to seize opportunities created by market disruptions. Use real-time data to guide your decisions, but avoid reacting impulsively to every headline.

With these strategies in place, continuous monitoring will ensure you stay ahead of potential risks.

Set Up Monitoring and Alert Systems

Staying informed about global developments is essential for effective risk management. Focus on monitoring regions where you have significant exposure.

Track bilateral relations and global events in real time. Tools like the BlackRock Geopolitical Risk Indicator (BGRI) can help by analyzing the frequency of financial news and brokerage reports tied to specific geopolitical risks, offering valuable insights into market sentiment.

Combine quantitative and qualitative tracking methods. Set up alerts for key terms related to your risks and monitor economic indicators like currency movements, commodity prices, and trade flows. These metrics often provide early warning signs of geopolitical stress.

Assess political stability in key regions. For emerging markets, this is especially important, as sudden political changes can impact market access or regulatory conditions. Use real-time data to stay updated on shifts in domestic politics.

Establish real-time alerts for critical geopolitical indicators. During stable periods, review your data monthly. When tensions escalate, increase the frequency to weekly. The goal isn’t to react to every development but to maintain awareness of evolving situations that could affect your portfolio. Angela Rodell of the Alaska Permanent Fund puts it well:

"The unexpected is what makes markets, creates spreads and allows us to generate alpha."

How to React During Geopolitical Events

When geopolitical crises arise, how you respond can have a lasting impact on your portfolio. The key is to stay calm, assess the situation carefully, and make decisions that align with your long-term goals. Let’s break it down.

Assess the Situation Clearly

The first step in navigating a geopolitical event is to separate the noise from the facts. Markets can be chaotic, but not every headline signals a fundamental shift. The challenge is to determine whether the event is a short-term disruption or something that could permanently alter the market landscape.

For instance, when Russia invaded Ukraine in early 2022, energy stocks surged in the immediate aftermath. Investors who stayed focused on the fundamentals could distinguish between temporary price swings and lasting changes to the energy sector.

Here’s what to keep in mind:

• Understand the scale and duration of the impact. Some events, like the U.S.–China trade war, lead to lasting changes, such as supply chain restructuring. Others, like short-term political tensions, may only cause temporary market jitters.

• Differentiate between threats and realities. Markets often overreact to perceived threats. Historical data, like the Geopolitical Risk Index, shows that while minor tensions are frequent, actual wars or major policy shifts are the real game changers.

• Base decisions on facts, not emotions. As James Sonne from PGIM points out:

  "When you as an investor can predict, you can prepare. It's when you are surprised that investment decisions may be difficult."

Once you’ve clarified the situation, you’ll be better equipped to adjust your portfolio thoughtfully.

Review and Adjust Portfolio Allocations

Before making any changes, revisit your core investment thesis. Ask yourself: Does this geopolitical event alter the long-term outlook for my investments? If the fundamentals remain strong, staying the course might be the best move.

Here’s how to approach portfolio adjustments:

• Fine-tune, don’t overhaul. If you have significant exposure to affected regions or industries, consider modest rebalancing. For example, during a European energy crisis, reducing concentrated exposure while maintaining sector diversity could be a smart move.
• Consider defensive assets. Assets like U.S. Treasuries, German bonds, and gold often perform well during periods of uncertainty. However, avoid the urge to move entirely into cash, as this strategy rarely benefits long-term performance.
• Stick to diversification. Use geopolitical events as an opportunity to rebalance your portfolio. If certain assets have dropped significantly, this could be a chance to buy quality investments at lower prices.
• Avoid trading during peak volatility. Wait for the initial market turbulence to settle before making adjustments. This helps you avoid panic-driven decisions that might lead to buying high or selling low.

Stay Focused on Long-Term Goals

Once you’ve made any necessary tactical changes, it’s essential to refocus on your long-term strategy. The most successful investors maintain discipline during uncertain times, avoiding reactionary decisions.

John Bilton of J.P. Morgan Asset Management sums it up well:

"It is time in the market, not timing the market, which wins in the long run."

The data backs this up. A 60/40 stock-to-bond portfolio outperforms cash 75% of the time after one year, with an average return of 7%. Over three years, it outperforms cash every time, with an average return of 21%.

Here are some ways to stay on track:

• Focus on resilient companies. Businesses with strong fundamentals, diversified operations, and solid balance sheets are more likely to withstand geopolitical turbulence and emerge stronger.

• See volatility as an opportunity. Market disruptions often lead to temporary mispricing of quality assets. If you have cash reserves and a long-term perspective, these moments can be excellent buying opportunities.

• Stay disciplined. UBS Global research advises against panic selling:

  "Geopolitical risks seldom have more than a fleeting impact...avoid getting caught up in any panic response and to not sell into the crisis."

• Keep the big picture in mind. Unless the geopolitical event fundamentally alters the growth prospects of your investments, short-term market swings shouldn’t dictate your decisions. By sticking to your plan, you’ll be better positioned to weather the storm and benefit when markets recover.

Ultimately, the best approach during geopolitical events is to stay calm, make fact-based adjustments, and keep your long-term goals in focus. Discipline and perspective will help you navigate uncertainty and emerge stronger.

Building a Portfolio That Withstands Geopolitical Risks

Creating a portfolio that weathers geopolitical challenges takes thoughtful planning, balanced investments, and regular stress testing. The aim? To build resilience while still pursuing growth.

Plan Your Asset Allocation

Start by evaluating your risk tolerance and adjusting your portfolio accordingly. A well-diversified asset allocation is the cornerstone of a resilient portfolio. Geographic diversification is particularly crucial. As UBS Global puts it:

"Maintaining a geographically diverse portfolio is the favored basic hedge." – UBS Global

Spread your investments across regions. Here's why this matters: from 2014 to 2023, the Morningstar Global Markets ex-US Index underperformed the Morningstar US Market Index in 8 out of 10 years. However, when U.S. markets face geopolitical pressures, international investments can help smooth returns and reduce volatility.

Using diversified international funds can also help manage regional risk. For example, during Brexit, British markets and the pound took a hit, but investors with a globally diversified portfolio saw more stable performance.

Incorporate safe-haven assets. Assets like U.S. Treasuries and gold can help cushion losses during periods of turmoil.

Balance growth with defensive strategies. Exchange-traded funds (ETFs) focused on foreign equities offer a cost-efficient way to diversify. For growth, consider markets with strong potential. VanEck has highlighted opportunities in India, accessible through funds like the VanEck Digital India ETF (DGIN) and the VanEck India Growth Leaders ETF (GLIN).

Balance Sectors and Risk Factors

Sector allocation plays a key role in managing geopolitical risks. Different industries react to global events in unique ways, so understanding these dynamics can help you position your portfolio wisely.

Recognize sector vulnerabilities. For instance, technology accounts for 29% of the Morningstar US Market Index but only 12% of the Morningstar Global Markets ex-US Index. This concentration creates both risks and opportunities. During U.S.-China trade tensions, tech stocks came under pressure, but international exposure provided some protection.

Lean on defensive sectors during uncertainty. Industries like healthcare, consumer staples, and utilities often perform steadily during geopolitical crises because they provide essential services. Allocating more to these sectors can help stabilize returns.

Capitalize on sectors that benefit from conflict. Defense and energy stocks often rally during geopolitical events. For example, energy stocks surged at the start of the Ukraine conflict in 2022. However, these gains can be short-lived, so proceed with caution.

Limit exposure to sensitive sectors. Industries like tourism, airlines, and luxury goods are particularly vulnerable during crises. For instance, Europe’s airline sector often declines after major terror attacks. Keeping an eye on these sectors can help you avoid unnecessary losses.

Balance emerging market risks. Emerging markets offer growth potential but come with higher geopolitical risks. To offset this, pair these investments with more stable markets or U.S. companies that thrive internationally.

Test Your Portfolio Under Stress

Stress testing helps you understand how your portfolio might perform under different geopolitical scenarios. This process identifies hidden vulnerabilities and concentration risks, allowing you to address issues before they become costly.

Run scenario-based stress tests. BlackRock’s Geopolitical Risk Indicator (BGRI) and Market-Driven Scenarios (MDS) estimate the potential short-term impact of geopolitical events. You can apply similar methods to your portfolio. For example, during the sanctions on Russia in early 2022, European equity markets fell 10%, volatility spiked 40%, and crude oil prices rose 12%. Testing against such scenarios can reveal how your investments might react.

Analyze specific risk factors. Different events lead to predictable market patterns. For example:

• A Middle East conflict often drives up oil prices and market volatility.
• U.S.-China tensions can hurt Taiwanese assets and Chinese high-yield bonds.
• Cyberattacks tend to boost safe-haven currencies like the U.S. dollar while pressuring utility stocks.

Use historical crises as benchmarks. The 2014 European Banking Authority stress test, where 25 banks failed, underscores the importance of rigorous testing. Similarly, you can examine how your portfolio would have fared during events like the 2008 financial crisis or Brexit.

Stay vigilant about emerging threats. A 2025 CrowdStrike report noted a 300% increase in state-backed cyberattacks targeting critical industries. Keeping tabs on evolving risks and testing your portfolio against new scenarios is essential.

Keep it practical. Focus on realistic, actionable scenarios tailored to your portfolio. Avoid overwhelming complexity by prioritizing the most likely risks.

Jan van Eck sums it up well:

"Stay invested, but diversified - this is a process, not a moment." – Jan van Eck

Building a resilient portfolio takes ongoing effort, but it pays off when geopolitical tensions arise. The goal isn’t to predict every crisis but to design a portfolio that can weather the storm and adapt to whatever comes next.

Conclusion: Managing Geopolitical Risks with Confidence

Navigating geopolitical risks doesn’t require predicting the future - it requires preparation, discipline, and a well-thought-out plan to protect and grow your investments.

The process begins with evaluating your current exposure across different regions and sectors. From there, focus on building a diversified portfolio that can endure a range of scenarios. Regular stress testing is crucial - it helps uncover potential weak spots before they turn into costly problems. Having a clear, pre-established response plan also ensures that decisions are made rationally, not emotionally, during moments of crisis.

Geopolitical events often bring both challenges and opportunities. By diversifying across asset classes, regions, and sectors, you create a more stable foundation for returns over time. Balancing investments between defensive sectors and growth opportunities while maintaining geographic diversity can help minimize the impact of any single event.

As Kenneth Fisher wisely said:

"Time in the market beats timing the market."

This advice is especially relevant during periods of geopolitical uncertainty. Reacting emotionally to global events often leads to poor investment choices, while staying disciplined and focused on the long term typically delivers better results.

To stay ahead, your strategy needs to evolve alongside global dynamics. Effective portfolio management depends on constant monitoring and fine-tuning. Comprehensive tools like Maybe Finance can make this process more manageable. With support for over 10,000 institutions, multi-currency tracking, and AI-powered insights, the platform allows you to monitor geographic exposure, sector allocations, and risk levels in real time. Its visualization tools make it easier to spot concentration risks and assess how global events affect your portfolio.

The goal isn’t to eliminate geopolitical risk entirely - this is impossible in today’s interconnected world. Instead, aim to build resilience into your investment strategy. Regular scenario planning, clear risk prioritization criteria, and alignment with stakeholder expectations are all essential components of a sound approach.

From conflicts to cyberattacks, geopolitical risks will continue to evolve. But with a structured strategy, a diversified portfolio, and reliable monitoring tools, you can navigate these challenges confidently and seize the opportunities they present. By following this roadmap, you’ll create a resilient investment strategy that adapts to the ever-changing global landscape.

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