After a five year period of uncertainty caused first by the Covid pandemic and then the Ukraine crisis, what most investors will have been hoping for in 2025 was a period of calm and stability in the markets. Unfortunately, the newly-elected resident of the White House had other ideas.
Whilst the UK may have got off relatively lightly in President Trump’s new trade tariffs, with a baseline level of 10% imposed on British exports to the US, even that level is sure to have an effect on the UK economy. Just as important is the global reaction to a move which has threatened an all-out international trade war, with the potential effects that would have on all markets throughout the world – including the UK.
And so it has turned out over the past week. Equity markets in the US, Asia and Europe have all seen significant volatility, with some big single-day movements (although not yet at the level we saw at the start of the Covid crisis, when we saw a dramatic 30% fall in market values over one month).
As my colleague Scott Hansell has pointed out, historically markets tend to overreact in the short-term, but also often recover swiftly. For example, just 12 months after the start of the pandemic – and while the disease was still in full flow throughout the world – many markets had returned to pre-Covid levels.
This kind of short-term volatility can be uncomfortable and unsettling for investors, but it is crucial that they don’t panic; investment decisions made on a knee-jerk basis are seldom the right ones.
The message to investors as we face another wave of market volatility is to keep a level head, and bear these three things in mind:
Investing is considered a medium to long-term approach – generally five years and beyond. During such a timescale, day-to-day volatility is pretty much a given.
A diverse investment solution is of paramount importance in protecting investors against that volatility.
Selling assets because of short-term movement in the markets is something to avoid, if possible; you could limit the longer-term growth potential.
That last point is particularly important: reactive selling following a big market fall both crystallises losses and removes the opportunity to benefit from any likely rebound – both of which will damage the long-term returns on a portfolio.
No-one can predict what will happen next; it is quite possible that we are in for something of a rollercoaster ride as the world adapts to a new trading environment.
