On Wednesday 2nd April, dubbed ‘Liberation Day’, President Trump announced the much-anticipated new round of global tariffs on goods entering the United States.
The measures implemented a 10% tariff globally from the 5th April and a series of further ‘reciprocal’ tariffs with some countries (from the 9th April), including the UK (10%), EU (20%), China (34% on top of the existing 20%), Japan (24%) and Vietnam (46%). Some specific items such as auto parts will also have more punitive levies added to them on import to the US too.
For the United States, the architect of the post-World War Two and Cold War liberal consensus, to increase tariffs unilaterally and dramatically in this fashion is clearly a substantial event geopolitically, economically and for financial markets.
Market Reactions – Short-Term vs Long-Term
Whenever significant economic policies are proposed or enacted, financial markets often experience volatility. This was evident during Trump’s first term, when tariff announcements led to market swings.
However, long-term investors who remained committed to their strategy saw continued growth as markets adjusted. Timing the market based on political developments is notoriously difficult, and history has demonstrated that staying invested through various cycles yields better results than reacting to short-term fluctuations, as the chart below demonstrates looking at US Presidential terms.
Source: Dimensional, 2023
Diversification – Staying on course is important
During times of market volatility, it is important to consider the mantra of ‘time in the market’ rather than ‘timing the market.’ While tariffs may have sector-specific implications – such as impacting manufacturing costs or corporate earnings – these factors are just one piece of a much larger economic puzzle. Overreacting to policy changes can lead to emotional decision-making, which often results in missed opportunities when markets recover.
For UK investors, it’s essential to view U.S. policies like tariffs within the broader context of global investment trends. While tariffs can influence trade and corporate profits, the global economy is vast and resilient. Diversification remains a key strategy, helping to mitigate risks associated with any single policy decision. As history has shown, markets have weathered trade wars, political shifts, and economic uncertainties, and long-term investment strategies have consistently delivered strong returns as seen below:
Growth of $100
1926 – 2023
Source: Dimensional, 2024 Â
We believe that markets work reasonably well, and that risk and returns are related. But most importantly, diversification is a risk management tool. With these overarching core beliefs, we have built a framework of five principles that we implement every time we invest.
Getting the asset mix right is crucial. ​ Choosing the appropriate mix by considering the risk appetite is key to achieving expected returns. The second step is to spread the risk of the selected assets by diversifying them. Owning a well-diversified portfolio helps drive long-term returns, whilst also providing an element of protection against uncontrollable macro-economic events.
Our third and fourth principle may look similarly related however they differ. When we say financial costs, we refer to cost of tax, ‘all-in’ costs (e.g. ongoing charges, transaction charges). Emotional costs on the other hand, are relating to a client’s behavioural mindset when it comes to investing.
Those who suffer from regret, pride, greed and panic tend to result in trying to guess market timing, which more than often cause a negative impact on investment returns. Take out the emotions and make decisions based on quantitative analysis rather than making behavioural choices.
Our fifth and final step is rebalancing the portfolio. The purpose of rebalancing is to control risk, and to ensure that clients are not exposed to more risk than they agreed to take.
Final Thoughts
Clearly, we are in unprecedented territory, and it is difficult to make firm predictions. In times like these we rely on our philosophy and principles, which is to be disciplined, manage emotions and tune out the noise.
As we have seen many times over, markets tend to react and then recover, and we do not see this situation as any different. The global environment is even more uncertain than usual, but this has not been without precedent.
As ever, it is imperative that we remain diversified and focused on long-term growth – with principles that have proved effective time and time again.
Important Note
The information contained within this document is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
This article is distributed for educational purposes only and should not be considered financial advice.
If you are unsure about the suitability or otherwise of any product or service, we recommend that you seek professional advice.
The opinions stated in this document are those of the author and do not necessarily represent the view of Progeny and should not be relied upon to make a financial decision.
Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
Past performance is no guarantee of future performance.
The value of an investment and the income from it can fall as well as rise and investors may get back less than they invested. Your capital is therefore always at risk. It should be noted that stock market investing is intended for the longer term.
We have express permission from external data providers to use their data and graphics; explicitly Dimensional. The originating companies are responsible for this data and the permissions of its use, not Progeny Asset Management. None of this information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
Exposure to various asset classes may include some assets that are considered to carry more risk. This means that the rise and fall in value could be greater than for lower fluctuations of value.
If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independent of the underlying assets, which could impact liquidity (*the ability to sell) or capital value. Your capital value is therefore always at risk. The information contained within this document is subject to the UK regulation, legislation and tax regime which is subject to change at any time.
