Trump, tariffs, and volatility in global stock markets

On the 2nd April, the US president announced increased tariffs on US imports and in so doing shocked global financial markets which have reacted negatively.

But, what do we at times of uncertainty and heightened volatility in global stock markets? This is a question that many people approaching retirement or who have already retired will be asking themselves.

Don't panic

The stock answer is don’t panic. The last time I said this was in 2020 when markets crashed at the start of the Covid pandemic.

However, this don’t panic message may sound patronising especially if you are concerned and anxious as events seemingly spin out of control.

An important caveat

Therefore, I always add a caveat. There is no need to panic if your investments were set up correctly in the first place and you have a good retirement plan.

This begs the question, ‘what is the correct investment set up’?

Diverse portfolios

Most investment experts agree that the key to good investing is to have a well diverse portfolio in line with your risk profile. This is achieved, not my picking a small number of popular or well-performing funds, but by having a suitable ‘asset allocation’, i.e. selecting the right proportion of different asset classes. The pie chart shows the current asset allocation for Morningstar’s Governed Portfolio - Moderate Growth which is one of the portfolios I recommend to my clients.

You will notice there is a good spread of equities and bonds across all the major markets e.g. US, UK, Asia, Europe and Far East.

Rationale for a diversified asset allocation

The rationale for a diversified asset allocation is twofold. First is to avoid having all your eggs in one basket, secondly, by investing in different sectors the overall risk is reduced. It doesn’t always happen, but the theory is that if one investment class is not doing well it is balanced by another asset class that is performing better.

One of the advantages of managed portfolio services, like the moderate growth Governed Portfolio mentioned above, is they are re-balanced by the fund manager at regular intervals to ensure that the asset allocation and stock selection keeps in line with your risk profile.

As I write this note (Wednesday 2nd April) there is still much uncertainty about the US tariffs on foreign imports but it does seem that global stock markets will remain volatile and subject to significant ups and downs. Hopefully, the shocks to global financial markets will be short lived.

In conclusion

The conventional wisdom at times like this is to remain invested, providing as I say above, you have a well-diversified portfolio and you take a longer-term investment view.

If you have any concerns about your investments, please do contact me.