Ask HN: What's the best investment strategy for a highly volatile market?

For someone who would like to have a stable passive income stream from their investment portfolio, how should one invest their money? Vanguard index funds sound great, but how does that type of portfolio fare when faced with:

1) Extreme market volatility (nobody seems to think we could face the worst economic depression in centuries, but every "worst event" was, by definition, worse than every preceding event.)

2) Inflated equity prices in light of the US Federal Reserve's quantitative easing policy. Near-0% interest rates pushed a lot of money into equities in order to return anything.

3) Bonds yields at historic lows.

4) Possibility of political unrest/war.

For 1 and 4, I'm not saying that's what will happen, only that there's a non-zero chance of it happening. Just as one sleeps better knowing they have medical or fire insurance, protecting oneself from economic risk should do the same.

So I suppose my question is more along the lines of: how can one protect a portfolio from downside risk while still earning a decent passive income stream?