5 Investment Opportunities to Consider in 2025: Diversifying Amid Market Volatility

As 2025 begins on a rocky note, many investors may find themselves reevaluating their portfolios in response to a volatile start to the year. With concerns about market fluctuations and economic uncertainty, it’s natural for both seasoned investors and newcomers alike to seek new opportunities. However, long-term investors are often reminded that knee-jerk reactions during volatile periods can lead to mistakes, particularly when it comes to asset allocation or risk tolerance. The most effective strategy may not be to make drastic changes but to carefully evaluate potential opportunities that align with long-term goals.

After a prolonged period where a narrow group of high-growth U.S. stocks led the markets, other segments are beginning to present attractive investment opportunities, offering not only appealing valuations but also potential diversification benefits. This post will explore five investment opportunities to consider now, ranging from dividend stocks and international equities to Treasury Inflation-Protected Securities (TIPS), minimum volatility ETFs, and small-cap biotech stocks.

1. Diversification with Dividend Stocks: A Smooth Ride in Volatile Markets

One of the most effective strategies for smoothing out the ups and downs of the market is diversification, and dividend-paying stocks are an essential tool for achieving this. With the recent drop in the S&P 500 Index, much of the decline has been driven by a select few technology and communication services stocks that had also driven the index’s sharp rise in previous years. These stocks now represent nearly 40% of the index’s total value, meaning their performance can have an outsized impact on the market overall.

For investors seeking a more stable and reliable source of income, dividend stocks can be a great option. These stocks often belong to established companies with solid financials, offering regular dividend payouts that can help reduce the impact of market volatility. Additionally, dividend-paying stocks may provide more steady returns over time, especially when reinvested to compound growth.

Investors can gain exposure to dividend stocks in a few different ways:

• Separately Managed Accounts (SMAs): Professional portfolio managers can build portfolios of dividend stocks with the aim of achieving lower volatility than the S&P 500 while still delivering long-term growth and income.
• Individual Dividend-Paying Stocks: Investors may want to focus on a diversified selection of dividend stocks from various sectors, rather than concentrating solely on those with the highest yields. Consumer staples, utilities, and energy sectors are good starting points.
• Actively Managed ETFs and Mutual Funds: Professional managers can help identify companies likely to increase dividends while avoiding those at risk of cutting them, ensuring investors remain exposed to a growing source of income.

2. Rebalancing with International Stocks: A Potential Opportunity for Growth

For much of the past decade, U.S. stocks have outperformed their international counterparts, leaving investors with relatively high allocations to American equities. However, there are signs that international stocks, particularly those from Europe and China, could begin to catch up. As of mid-March 2025, European and Chinese shares have already posted double-digit gains, signaling the potential for further growth.

Europe, in particular, has been showing signs of economic revival, spurred by factors like the German election and increasing fiscal spending, especially in defense and infrastructure. This resurgence, combined with the economic stability of China, may provide a fresh wave of growth potential in these regions.

For investors who have grown under-allocated to international stocks, now could be an opportune time to rebalance and take advantage of attractive valuations. International exposure provides diversification, reducing the overall risk of a portfolio that may be too reliant on the performance of the U.S. market.

Investors can access international stocks through various mutual funds or ETFs that focus on specific regions, such as Europe or Asia. The Fidelity Mutual Fund Research tool or ETF Screener can be valuable resources to identify these options.

3. Defense Strategy: Treasury Inflation-Protected Securities (TIPS)

In times of economic uncertainty, investors often turn to bonds as a means of managing risk. However, inflation can erode the purchasing power of bond yields, particularly in a high-inflation environment. Treasury Inflation-Protected Securities (TIPS) are a unique solution that helps shield investors from the negative impact of inflation.

TIPS are U.S. government bonds that adjust both their principal value and interest payments with inflation, ensuring that bondholders are protected from rising prices. These bonds are available in various maturities (5-year, 10-year, and 30-year), and as inflation rises, both the principal and the payments increase.

For those seeking to diversify their portfolios with inflation-protected bonds, TIPS can provide a valuable hedge against inflation while maintaining the diversification benefits that bonds offer. TIPS are available for purchase as individual bonds, mutual funds, or exchange-traded funds (ETFs), giving investors flexibility in how they add them to their portfolios.

4. Defense Strategy: Minimum Volatility ETFs

With market volatility increasing, investors looking to reduce risk exposure may consider minimum volatility ETFs. These exchange-traded funds track indices designed to provide lower-risk alternatives to the broader market, typically by focusing on stocks with lower price fluctuations.

Minimum volatility ETFs aim to reduce exposure to market swings by investing in companies that have historically exhibited lower volatility during turbulent periods. This strategy can be particularly appealing to investors concerned about market fluctuations but still seeking the potential for growth.

In addition to traditional minimum volatility ETFs, there are also mutual funds and options-based ETFs designed to minimize risk while still offering upside potential. By incorporating these funds into a portfolio, investors may be able to protect their investments from significant market downturns.

5. Opportunity in Small-Cap Biotech Stocks: A Risky But Potentially Rewarding Sector

Small-cap biotech stocks are known for their volatility, often experiencing boom-and-bust cycles as their fortunes depend on the success of clinical trials and the regulatory process. However, after a challenging period for the biotech sector, marked by rising interest rates and higher capital costs, small-cap biotech stocks may now represent an opportunity for savvy investors.

The biotech industry has seen some positive trends in recent years, with improving product pipelines and promising results from clinical trials. Furthermore, some of these small biotech companies may become acquisition targets for larger, cash-rich pharmaceutical companies, potentially providing significant upside for investors.

Though investing in small-cap biotech stocks can be risky—many of these companies are not yet profitable, and the success of new treatments is never guaranteed—investors who understand the risks may find this sector to be an attractive opportunity. As always, for those interested in small-cap biotech, it’s advisable to consider working with professional portfolio managers or investing through specialized funds to manage the risks more effectively.

Conclusion: A Balanced Approach to Investing in 2025

As markets experience volatility and investors seek to adjust their portfolios, opportunities exist across a variety of sectors. Diversifying into dividend stocks, international equities, and defensive instruments like TIPS and minimum volatility ETFs can provide a balanced approach to managing risk. Additionally, for those comfortable with higher risk, small-cap biotech stocks could offer significant growth potential as the sector rebounds.

No matter which opportunities you decide to pursue, it’s important to remember that successful investing requires a long-term perspective and a carefully crafted strategy. By making informed, thoughtful decisions now, you can position your portfolio for success, even in the face of market uncertainty.