As events unfold at breakneck speed on the national and international stages, uncertainty—and the volatility it inevitably breeds—seems to be the only enduring theme dominating the public conversation about investing. Volatility introduces the risk of loss and should invite caution, but it can also create opportunities for investors to purchase assets at compelling prices. Here are seven principles to help you and your clients maintain perspective.

1. Acknowledge that this is a time of flux, regardless of your political beliefs. Let's start with what's obvious and local: we are witnessing a seismic shift from a post-crisis ethos of intervention (think Dodd-Frank) to an administration that broadly favors deregulation. The swinging pendulum will touch industries beyond finance and ranging from healthcare to education to energy. Opinions differ on whether markets have priced in the right amount of optimism. From a more global perspective, an era of coordinated monetary easing has ended as the United States prepares for additional rate hikes. Meanwhile, in the United States and Europe, fiscal policy may be poised to loosen. ETFs are the most cost-effective way to express conviction that all will proceed smoothly and as expected. The possibility of a different outcome gives active managers a lot to chew on.

2. Understand the implications of following the herd. Have you heard your fill of offhand comments that ETFs represent the latest “bubble”? Rather than use the dreaded B-word, Seth Klarman—the “Oracle of Boston” and the only hedge fund manager heralded publicly by Warren Buffett—instead wields a powerful mathematical argument: when a lot of capital flows uniformly into (or out of) certain securities as a group, it “will tend to 'lock in' today's relative values” between those securities. Which is fine—until it becomes clear that some companies have been punished for merely not belonging to an index, while others have ridden the wave of index constituency to artificially high multiples. If this situation corrects itself and companies are priced more on their individual merits, well-managed active strategies stand to benefit.

3. Balance active and passive approaches. This is not to say that passive is passé. Active managers, and particularly funds of funds with double fee layers, start the performance race against lost cost indexing strategies with a significant net return disadvantage. Paradoxically, Buffett is both a staunch advocate for indexing and arguably the most successful active manager of all time. He reconciles these opposing views through the belief that there are a small number of investment managers capable of earning their fees—and then some—through superior performance. Klarman (whom Buffett believes to be among these select few managers) believes that the exodus of capital from active strategies will ultimately improve active managers' returns as fewer dollars chase a finite number of opportunities.

4. Revisit your definition of diversification. A portfolio of 500 companies will likely be less volatile over time than any of its individual constituents. However, in a downturn, each of those companies is likely to respond negatively to any of a number of events, like geopolitical conflict, a weaker-than-expected jobs report, or a larger-than-expected rate hike, to name a few. Moreover, an initial decline in an index could precipitate further declines as more and more ETF investors redeem in panic. Rather than think of diversification only as safety in numbers, it may be more prudent to approach it as a broadening of portfolios to include components that may respond differently to the same events. While many hedge funds, for example, have disappointed relative to indices in recent years, it is important to remember that they lost significantly less (on average) during the financial crisis and tended to recover these losses more quickly. This outperformance was due in part to their ability to “hedge” risk by reducing exposures quickly and by using short positions, derivatives and minimally correlated assets such as gold and U.S. Treasuries.

5. May I speak with you in private? Another approach to limiting volatility is taking some capital out of public markets and investing in or lending to private companies. Private equity funds generally require a 10-year plus commitment as they buy, improve and sell assets. Private credit can have a shorter duration and can introduce an income component. Both types of funds give managers the latitude to create long-term value for investors away from the noise of daily valuations, quarterly analyst reports and retail investors' overreactions to exogenous events. Private markets also allow managers to use their relationships to gain an information advantage in sourcing and acquiring attractive assets. Private equity is a broad asset class that includes companies from early (venture) to late (buyout) stages, as well as private real estate and infrastructure. The latter could be particularly interesting if the Trump administration is able to realize its ambitious public/private infrastructure plans.

6. Have a plan for deploying cash. High-net-worth investors are currently holding large allocations to cash, which can serve the dual purposes of lowering volatility and saving “dry powder” for the next great opportunity. Rather than risk missing entry points as markets move, investors should consider hiring managers with the flexibility to move exposures and the expertise to do so effectively. For those who want to manage the cash more actively themselves, consider placing small toehold positions with managers—that way, you can move quickly to increase positions, rather than trying to start investment relationships during a pullback. A caveat is in order here: A manager making a purposeful allocation to cash in order to mitigate risk and prepare for opportunities is quite distinct from his being required to hold cash to meet regulatory requirements or to fund potential redemptions. The former situation describes some hedge funds, while the latter describes all mutual funds.

7. Patience is a virtue. Even when active management really delivers, it can take time. An overvalued (or undervalued) company may stay that way for a protracted period. Against the backdrop of highly volatile markets, investors seeking to profit from mispricings should be all the more willing to wait for the situation to correct. Funds that do not permit daily withdrawals—provided the liquidity provisions are matched to the underlying assets—can protect investors from other participants' weaker impulses as well as their own. In a downturn, mutual fund clients have tended to redeem their investments, often forcing managers to sell at exactly the worst time. Funds with a longer redemption window, on the other hand, can be buyers of the resulting underpriced assets.

Conclusion: The market has rewarded passive investors for several years now, and the low cost and high efficiency of passive strategies suggests that they merit a long-term position in portfolios. At the same time, there are signs that change is afoot: a new administration and the execution of a new political agenda, a transition away from coordinated monetary easing and a dramatic migration of assets from active to passive investing. Skilled active managers, particularly those running alternative strategies, have the potential to protect investor capital and even profit from the volatility that tends to accompany such significant change. But investors need not choose wholesale between active and passive or try to time a turn in the market environment. Active and passive strategies can be complementary, and a combination of the two may offer needed balance in the face of uncertainty.

James Waldinger is CEO of Artivest, a tech-driven investment platform expanding access to private equity and hedge funds for financial advisors and their HNW clients.