Here’s how one investor is planning to play the volatility he expects this year after a whipsaw first month: a portfolio that is 70/30 stocks and cash. Ken Mahoney, CEO of Mahoney Asset Management, said investors should hold onto a “meaningful amount” of cash this year — roughly 20% to 30% of their portfolios — to provide a buffer not just for geopolitical risks, but for heightened tensions heading into the midterm elections this year. “I always tell clients, we can make volatility our friend or foe,” said Mahoney. He added, “It depends on the person, but anywhere from 20% to 30% would be a pretty good buffer now to have something in cash.” That would mean a portfolio that is either 70/30 — or even 80/20 — stocks and cash, as opposed to the low single-digit percentage allocation investors usually earmark to cash in any given year. New Jersey-based Mahoney Asset Management has $450 million in assets under management. Traditionally, a classic mix of 60% stocks and 40% bonds is touted to give investors growth while also offering some risk mitigation. Indeed, last year was a strong year for fixed income, with the iShares Core U.S. Aggregate Bond ETF offering a total return of more than 7%, reviving interest in the asset class. However, Mahoney said he worries a higher 10-year yield could pressure bonds this year, possibly even leading to negative returns. “We don’t have a bond allocation. We think that’s a wasted asset,” he said. Instead, he’s far more confident an expanding economy will be positive for the stock market in 2026, in which a substantial cash allocation will help investors play offense in a midterm election year that is likely to involve at least one correction of more than 15%, if history is any guide. Indeed, midterm election years tend to be the most volatile for stocks in a four-year presidential cycle. According to Aptus Capital Advisors, the average intra-year decline for the S & P 500 is 19%, while the other three years have an average intra-year drop of just 12%. This year has already proved itself to be highly volatile. As of Tuesday, the major averages are set to close out a winning month, with roughly 2% gains to date in each, but with massive swings in the stock market mostly centered around shocking geopolitical headlines. .SPX YTD mountain S & P 500, YTD performance Just last Tuesday, Jan. 20, the Dow dropped more than 800 points , while the S & P 500 and Nasdaq Composite fell more than 2% each, after President Donald Trump threatened to revive a trade war with European countries opposing the sale of Greenland. But investors who bought into the pullbacks have thus far been rewarded. JPMorgan found that Jan. 20 was the third biggest single day for retail trader buying in a year. The dip-buying promptly paid off the following day when stocks roared back after Trump called off the tariffs tied to Greenland. In such cases, investors should draw up their shopping lists and stay liquid for the next big drawdown, Mahoney said. “Two- or 3%, 4% of cash, it’s not going to do anything if you have a really big downturn,” Mahoney said. “This year, we’ve already seen could be very volatile,” he continued. “I would sell into strength a little bit incrementally. Incrementally is the key. It’s not timing. And tactically, be prepared to buy some of the downturns we’ll have surrounding the midterm election.”
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