Trump’s Tariffs – What should I do?
Joseph Middleton
Independent Financial Adviser at GDA
As many of you reading this will know, the president of the United States, Donald Trump, recently announced a number of tariffs on countries across the globe. This has resulted in stock markets losing up to 20% of their value over the past week. The tariffs were far stricter and far reaching than the market had anticipated, indeed these are the highest tariffs for nearly 100 years - comparable to those set in the US in the late 1920s. The goal of these tariffs is for the US to re-establish their industrial base and support US citizens in what President Trump deems ‘left behind areas’, whether this will be a success remains to be seen. Given the nature of this change, it is too early to fully assess the market reaction and understand what stock markets will look like going forwards.
“Overall, the tariffs represent a substantial effective tax on US consumers and are likely to result in decreased volumes of goods being purchased by US consumers at higher prices. This could lead to a downturn in the US economy, reduced profitability for companies exporting to the US and the potential for a deflationary stimulus as excess inventory is sold to the rest of the world.”
With that being said there are a few points we would like to cover in terms of what you should and shouldn’t do in these circumstances.
Don’t panic – Market shocks like this happen from time to time and they can often be followed by strong periods of outperformance over cash. If you sell your investments it is very difficult to judge when to buy back into the market, and you could miss out on significant gains as the market recovers. This is especially true in circumstances such as this, where government policy and the news cycle are having a strong impact on market volatility. Any positive news or reversal of policy could result in market sentiment changing. This has already happened over the past week when Trump announced a pause on the majority of tariffs.
Think long term – When you invest it should be envisaged over a 5-year time period at a minimum, this means that you are able to ride out periods of volatility. It does not matter what the valuation of your investment is on any given day, as long as you are making returns above cash on average over the long term. Recent examples of market downturn include that seen during the Covid pandemic and Russia’s invasion of Ukraine, both of which were followed relatively quickly by recovery. Although we should caveat that past performance does not indicate future results. Markets in general are still higher than before these events, despite the losses of this week, illustrating the reassurance that a long-term view on investing can bring.
Remain diversified – Having exposure to different regions and assets is a staple of long term investing, and this is especially true during moments of market volatility. Different assets can perform well at different times, for example, holding gold and bonds have offered some protection this week as they have risen in price or held their value.
Active fund management – It is during times of increased volatility that active fund management can flourish and protect your portfolio on the downturn. Volatility provides opportunities for stock pickers to find shares that have become cheaper, and those which they believe have good prospects over the long term. They can also avoid shares that they believe will suffer from the changes in the market. This is advantageous over passive funds which invest in everything in the index.
We are keeping a close eye on developments in the market and will be reviewing our portfolios and funds as the situation becomes more clear. We are confident that by sticking to the above four principles, portfolios should be well set for the long term.
This article is for general information and does not constitute personal financial advice. If you’re unsure what’s best for you, seek independent financial advice.
