“Textbook Meets Reality – Reflections on the Hot March of 2026”

One of the peculiarities of reality is that it behaves differently than textbooks prescribe. However, this does not mean that textbooks should be discarded; rather, they should be continuously updated. Ali Masarwah, fund analyst and managing director of the consulting firm envestor, has reflected on what will characterize the turbulent March of 2026.

March 23, 2026. FRANKFURT (envestor). Where should you put your money during turbulent times on the stock market? If we agree that the war between the U.S. and Israel against Iran could have potentially devastating consequences for the global economy, then at first glance, gold would seem like a good line of defense for portfolios—especially since rising energy prices are often a harbinger of inflation. The precious metal is considered a classic hedge against financial system crises. But what has become of this protective shield for securities portfolios? It has plummeted by a good ten percent since the attacks on Iran began. It is therefore less surprising that gold stocks are also among the biggest losers. Unfortunately, the leverage on the gold price also works during downturns, causing small mining companies in particular to plummet on the stock market. The NYSE Arca Gold Bugs Index plunged by a good 30 percent in March. So let’s cross gold off the list.

The next disappointment comes from Swiss stocks. They are generally considered the most solid investments the stock market has to offer. Yet even they have suffered double-digit losses so far.

But there are also positive surprises. Ironically, software companies (SaaS, Software as a Service) are among the winners of the past three weeks. Back in February 2026, these companies were predicted to face an AI-induced collapse. ETFs tracking the Nasdaq Emerging Cloud Index have gained a solid five percent so far this month on a euro basis.

How does it all fit together? The current correction—we are deliberately not yet speaking of a crisis or crash—is a good opportunity for a few observations:

Individual asset classes may exhibit certain characteristics over the long term, but how they perform in a specific situation is contingent. Gold is likely losing so much value precisely because many investors are cashing out after substantial gains in 2025 and 2024 (up 45% and 35%, respectively, from the perspective of euro-denominated investors); With SaaS stocks, the realization is apparently setting in that the losses of the past 12 months were exaggerated. Many software companies that were literally crushed on the stock market are posting brilliant profits—perhaps not all of them will be driven into bankruptcy by AI after all?

During correction phases, everything that is liquid—and thus quickly and cheaply sellable—is typically sold off. Diversification therefore often performs worse than hoped for during a general sell-off. However, anyone who concludes from this that diversification “no longer works” is mistaken. Diversification does not mean that a portion of the portfolio must always be in the black. What matters is that not all assets fall permanently and to the same extent.

There are winners even during market corrections: today, for example, catastrophe bonds and corporate bonds for emerging markets are up slightly, while energy stocks are up significantly. The fact that such niche assets are outperforming the broader market is helpful, but because they are niche assets, their impact on a portfolio should not be overestimated (unfortunately, such assets are also all too rarely found in standard portfolios). Some niche markets have the potential to move into the mainstream, but some niches remain niches and will never make a dent in portfolios. Therefore, investors would do well to focus primarily on broad markets.

Bonds are not a safe asset class per se. The specter of inflation is currently looming. As inflation expectations rise, bond yields rise as well, and then prices fall. Longer-term government bonds lost ground across the board in March—led by British gilts, but broadly diversified euro bond indices also slumped by up to three percent. Investors would do well to keep an eye on duration risk—after all, the bond market crash of the century was just four years ago.

Conversely, cash is once again king. But even those holding high-yielding cash, such as in money market funds and ETFs, pay high opportunity costs for it in the medium and long term. Ultimately, investors who “keep their powder dry” are acting tactically. As investors know, however, the motto holds true: Time in the market beats market timing.

Even seemingly erratic movements in asset prices are rationally explainable consequences of differing preferences. Not only do investors’ investment strategies diverge during volatile times, but differing time horizons also encourage different behaviors. Investors with a “long-term view” ride out corrections. Those, on the other hand, who overreached with a limited risk budget during bull markets will pull the ripcord sooner rather than later during a correction.

When many risk positions have been built up with credit, the bank’s margin call and liquidity sometimes determine the short-term direction of the markets. Fortunate are those who have the nerves and financial strength to weather short-term liquidity crunches.