Small investments, big strategies: navigating a weak dollar and volatile markets

A poorly diversified portfolio risks incurring steeper losses in times of stress. The lesson is clear: resilience matters more than short-term performance.

by Vincenzo Lana, investor and financial-economic commentator

In the United States, the economic divide between large and small companies keeps widening. The listed giants are reporting solid profits and attracting capital thanks to enthusiasm for artificial intelligence, while many small businesses are struggling to withstand economic headwinds. High inflation, more cautious consumers and increasingly frequent trade barriers are squeezing margins and forcing companies to cut staff and investment.

According to ADP data, over the past six months companies with fewer than 50 employees have lost more than 120,000 jobs, while medium and large companies continue to hire. This trend does not concern the United States alone, but it also offers valuable insights for anyone investing in Europe, especially small investors. In many cases, the small European investor resembles a small company: there is less room for error, limited ability to absorb sudden shocks and greater exposure to the downturns of the economic cycle.

Just as small businesses suffer more than large ones, a concentrated portfolio or one that is poorly diversified risks incurring steeper losses in times of stress. The lesson is clear: resilience matters more than short-term performance. Large companies are better able to weather storms because they have access to credit on more favorable terms, can pass some costs on to customers, benefit from economies of scale and attract capital when uncertainty rises. In financial markets, this often translates into the outperformance of major indices over small caps, steady flows into global ETFs and core products, and greater volatility for smaller companies. For the small European investor, ignoring these dynamics means taking on avoidable risks.

Complicating the picture is the currency factor. In 2025, the dollar has shown significant weakness, losing about 9–10% against a basket of global currencies. The EUR/USD exchange rate moved from 1.04 to above 1.18, a rise of more than 10%. For a European investor, this means that even if an American stock or index has risen in dollars, the return converted into euros has been far lower, or in some cases wiped out altogether. In past years, similar periods of dollar weakness have reduced the returns of European investors exposed to the United States, while European or emerging markets, less tied to the dollar, have at times performed better.

The phenomenon of a weak dollar is intertwined with the high valuations of U.S. growth stocks, which in recent years have driven much of the growth in American markets. These stocks, especially in the tech and AI sectors, trade at high multiples and are sensitive both to rate changes and to currency movements. Historically, during periods of a weak dollar, non-U.S. markets have outperformed the American ones in terms of returns converted into euros, while defensive assets such as gold and commodities have benefited from the American currency’s decline.

For the small European investor, these dynamics highlight the importance of geographic diversification and risk management. Classic portfolio structures such as 60/40, with 60% in global equities and 40% in bonds, continue to provide a solid foundation. More sophisticated approaches, such as the Butterfly Portfolio, which combines global equities, bonds of different durations and real or defensive assets, have historically shown greater stability during periods of uncertain inflation, geopolitical shocks and high volatility. Small caps also have a role, but they should be treated as a satellite component and never as the core of the portfolio. Despite current difficulties, after phases of underperformance these companies have often seen significant recoveries. The key is to size them properly, taking into account risk and the time available.

In short, both the real economy and financial markets tell the same story: those who are better structured survive, not those who bet everything on immediate growth. For the small European investor, this means taking the risk posed by exchange rates into account, diversifying geographically and building balanced portfolios that can adapt. Just as large companies are better able to withstand economic shocks, a well-structured portfolio can withstand market cycles.