Why the market volatility from the Trump tariffs is a reminder of the importance of staying invested
On 2 April 2025, President Trump signed an executive order to impose 10% tariffs on all US imports, sending shockwaves across the global economy.
Dubbed “Liberation Day” by the president, this was originally designed to be effective from 5 April, with higher tariffs to be imposed on specific countries from 9 April. However, after significant market volatility and uncertainty, these higher tariffs were quickly suspended for all countries except China. The baseline 10% tariffs applied across the board have remained in place.
As events have quickly moved on, you may have found it difficult to keep up with the revolving door of information. And, you may also have become concerned about the impact these tariffs could have on your investments and pensions, especially if you have seen them fall in value in the past couple of weeks.
While this is understandable, it’s also worth remembering that market volatility is no new thing.
It’s important to try to cut through the noise and keep a cool head, looking to the long term rather than losing yourself in the immediate turmoil.
Ever-evolving situation as the world’s markets respond to changes
The impacts of President Trump’s announcements were almost instant. The proposed tariffs spooked the markets, with massive uncertainty over how they would impact businesses and global trade.
According to the BBC, on 4 April, the:
- Dow Jones fell 5.5%
- Nasdaq dropped 5.8%, wiping out roughly a fifth of its value since December
- FTSE 100 index closed 4.9% lower, the biggest one-day drop since March 2020
- Nikkei 225 fell by more than 2.7%.
Headline writers struggled to keep up with the changes, which came thick and fast. Retaliation tariffs, trade war threats, fears of a global recession, and forecasts of the economic fallout dominated worldwide media.
With further announcements, caveats, and exemptions made since Liberation Day, the situation is ongoing and evolving. Trading partner nations are seeking to strike their own deals with the US, and the unpredictable nature of events looks to continue for the time being.
Staying invested is usually the best course of action
It can be tempting to cash in your investments during turbulent economic times, especially if you have seen them fall in value. But, while past performance does not necessarily indicate future performance, the reality is that staying invested is almost always the best decision – that’s what history has shown.
While long-term investment is never entirely without risk, it is rare to lose out this way. Conversely, cash values can quickly deplete thanks to inflation impacting your purchasing power.
Indeed, according to Schroders, the last time cash beat inflation in a five-year period was February 2006-2011. A significant finding, as cashing out your investments means risking your money losing value in real terms if inflation rises.
History also teaches us that making an emotionally driven decision to cash out would have been the worse decision, even under dire circumstances.
Further data from Schroders shows us that investors switching to cash in 1929 after the first 25% fall in the Great Depression would have had to wait until 1963 to return to breaking even, compared with early 1945 if they had remained invested.
Similarly, findings show that an investor who had shifted to cash after the first 25% of losses during the financial crash in 2008 would still find their portfolio underwater today.
The same is even true when trying to time the market, switching to cash when markets are volatile and reinvesting when they have calmed down.
In fact, a $100 continual investment from January 1990 to 2024 would have grown to be worth more than 2.5 times as much as the same amount invested in a portfolio where you tried to time the market and switch between the two.
More recently, those who cashed in directly after President Trump’s tariff announcements could be regretting their decision as, according to the BBC, markets have since started to rally after the pause on the tariffs.
All this goes to show that sticking to your long-term investment strategy would always have been the better option over time.
Your financial plan is designed to withstand volatility
Turbulent markets have always been around, and investing is inherently volatile. Unfortunately, the media, and more recently, social media, can turn these occurrences into a sideshow, spreading fear and inducing panic.
That’s why creating a long-term investment strategy and sticking to it is often the most sensible way forward – and historically, the most effective way to generate returns.
As financial planners at Caliber, we understand that withstanding volatility has to be an integral part of your financial plan. When we work with you, we build in contingencies to mitigate these events as much as feasibly possible, such as making sure you have a diverse portfolio of investments with appropriately balanced risk according to your circumstances.
We also often suggest keeping some cash reserves to use during times of stock market turmoil. This can prevent you from having to liquidate your assets at a lower value and enables you to keep a consistently invested portfolio.
Get in touch
If you’d like to discuss any aspect of financial planning, including navigating tricky times or if you have any concerns about global events, we’re happy to help.
Email contact@caliberfm.co.uk or call 01525 375286 to speak to one of our team today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
