Exceptional volatility is going to be part of the market for the foreseeable future and portfolios may need to be rebalanced two or three times a year to compensate, according to the authors of a white paper on the new world economy.

The West and the United States are no longer the leaders of the economy of the world and no longer the safe bets for investments, according to The Great Global Shift: New World, New Rules, produced by Bank of America, Merrill Lynch Wealth Management.

This shift has a profound affect on the way portfolios are balanced and diversified, says Lisa Shalett, chief investment officer, Merrill Lynch Global Wealth Management. She and Ian Bremmer, president Eurasia Group, released the details of the white paper.

The new world involves a rethinking of the relationships of the places like the United States and China, of the developed and developing markets and of debtor and creditor nations, Bremmer says. "The level of volatility right now is unprecedented. It is not sustainable, but it is here for the near term and the future volatility is going to be even greater," Bremmer said in a conference call. "The West and western institutions like the World Bank will no longer dominate. That world is over -- the 2008 economic crisis changed that."

New rules apply to this new world, according to Shalett. "The way to navigate this new volatility is to build portfolios that are more global than ever and to have more flexibility," she says.

Cash, bonds and equities are not the full receipt any more. A portfolio should have things like high-yield bonds and emerging market bonds. "The world is much more dynamic and portfolios drift from strategic allocations quickly. You may want to rebalance two or three times a year to take advantage of the dislocations," Shalett says. This includes being open to investments in such places as Turkey, Indonesia and Brazil, and no longer chasing Chinese manufacturing but chasing the Chinese consumer.

Neither Bremmer nor Shalett say they are talking about eliminating domestic investments, but domestic investments are not your only pathway forward, she says.

"You want to think about investments that are not correlated. You want to think of commodities, real estate, gold, private equity and hedge funds to reduce the volatility and reduce the correlation to equities," she explains.

"Extraordinary volatility is the new normal." Bremmer adds. Emerging and developing markets will make up two-third of the growth in global GDP this year. Change has arrived so swiftly that our largest institutions, while still holding to the paternalistic model of the West as benefactor and protector are being surpassed by the very countries they were set up to help, the report concludes.

-Karen DeMasters