278: How to Build a Balanced Portfolio and Navigate Market Volatility: Your investing questions answered

Kristy Akullian · BlackRock

Markets overreact to news, so sharp sell-offs are often followed by sharp rebounds.

She cites the fact that over the last twenty years, 24 of the 25 best-ever market days came within one month of the worst-ever day. From this she argues that markets overreact as they digest new information, producing sharp sell-offs that are often followed by sharp rebounds. She uses this to explain why selling during volatility risks missing the recovery.

“24 out of 25 of the best ever days in the market came within one month of the worst ever day in the market. So markets tend to overreact to news as they're processing and digesting new pieces of information.”at 5:27

Kristy Akullian · BlackRock

Bonds provide ballast and diversification in a balanced portfolio, especially when equities fall.

She argues that a balanced portfolio does not move as one piece, so bonds act as an important source of ballast. Bonds matter little when equity markets are rising, but they become valuable in volatile periods when popular trades come under pressure. She explains the mechanism: bond prices fall when rates rise, and longer-duration bonds swing more for the same rate move. Credit quality also matters, since stronger issuers trade at narrower spreads.

“a balanced portfolio doesn't all move together. And so bonds can serve as a really important source of ballast in a portfolio, which it doesn't seem as important when equity markets are just going up. But it's certainly when we see those periods of volatility”at 7:43

Kristy Akullian · BlackRock

Investors now differentiate across the AI stack, rewarding quality AI firms over speculative ones.

She describes how the AI trade has changed from 2024-25, when almost anything AI-adjacent rose, to 2026, when investors differentiate sharply. Early in the year software lagged hardware because software was seen as potentially replaceable by AI, while hardware was needed for the build-out. Later, investors focused on who writes the checks (hyperscalers, the largest index constituents) versus who cashes them (memory and semiconductor suppliers). Recently, with higher interest rates, higher-quality AI companies with stronger balance sheets and earnings have been rewarded, while lower-quality, speculative parts of the AI market have been punished.

“higher quality AI companies are being rewarded right now, the ones with stronger balance sheets and stronger earnings, where some of the lower quality, more speculative parts of the AI market have really been punished recently.”at 13:07

Kristy Akullian · BlackRock

AI build-out competes for capital, lifting yields and the cost of capital, but doesn't crowd out all investment.

She argues there is an element of truth to AI crowding out other spending because capital is fungible and money funnelled into AI cannot go elsewhere. She cites rising yields as evidence of this competition, since funding the AI build-out pushes up the cost of capital for other industries. She does not think this signals that all other investment is being crowded out. Instead, it raises the required rate of return that new investments must meet, and it makes portfolios more concentrated, so investors need outside diversification.

“we've seen yields rise. As more investors are trying to fund some of that AI build out, it's pushing up the cost of capital for other industries as well. It doesn't necessarily signal to me that we are crowding out all other investments.”at 15:31