Trump, tariffs, and long-term investing

Investing can often feel like navigating through a storm, especially with the current uncertainty around trade policies and market volatility. It's natural to feel anxious about investments during these times. However, it's important to remember that market fluctuations are a normal part of investing. By keeping long-term goals in mind and ensuring a diversified approach, we actively manage our clients' money to help weather these storms and aim to seize opportunities.

Understanding market volatility

Given the uncertainty around trade policies coming out of the US, it's not unusual for clients to feel nervous about investing. When we see volatility in markets, it's good to remind ourselves that pullbacks in markets are normal and may present opportunities for active managers, like Schroders Personal Wealth, to capitalise on them to deliver potential results for our clients.

Corporate earnings and long-term strategy

Despite the uncertainty we’ve been seeing recently, the S&P 500 earnings in the fourth quarter of 2024 showed about 18% year-over-year growth for seven quarters, the highest since 2021. Working with your adviser and setting your long-term investment strategy and overall risk tolerance is crucial. Remember, well-diversified and actively managed portfolios historically perform better with time in the market rather than trying to time the market.

Trump's trade policies and global growth

The first 100 days of Trump's presidency were marked by significant changes in trade policies. For example, Trump announced various tariffs on goods from Mexico, Canada, and China, as well as on aluminium and steel imports. These tariffs aimed to protect domestic industries and jobs, citing trade imbalances as a key concern.

Example in action: In 2018, Trump imposed tariffs on Chinese goods, leading to temporary market volatility. However, over the longer term, the market adjusted, and the initial noise was washed out. This pattern of temporary fluctuations followed by stabilisation is common with rapid policy changes.

Impact on global equity investors

Countries with significant trade deficits with the US, like China, the EU, and Mexico, are at risk from tariffs. Economies most exposed to US tariffs include Mexico, Canada, and Taiwan. More trade barriers could slow global growth and raise prices. However, US consumer spending has so far remained resilient, and wage growth is expected to support demand.

Example in action: The tariffs on steel and aluminium imports in 2018 led to a rapid market movement, causing initial negative sentiment. However, as the market adjusted, the longer-term impact was less severe than initially feared. This demonstrates how rapid policy changes can lead to temporary market movements that tend to stabilise over time.

Investment strategy amid uncertainty

Despite political uncertainty, the global economy's outlook remains positive, with GDP growth forecasted at 2.5% for 2025 and 2.8% for 2026. Global inflation is expected to be around 2.8% in 2025 and 2.3% in 2026. Our investment partner Schroders believes in a “soft landing” scenario, with resilient US consumer spending and a cooling labour market supporting growth.

Our portfolio management approach

At the heart of our investment philosophy is a commitment to strategic, diversified, and active management. This ethos guides how we build and manage portfolios to help reassure our clients and potentially achieve their long-term financial goals.

1. Diversification: Focus on long-term investment strategies, positioning portfolios for long-term growth (around 10 years). Investing through changing conditions potentially leads to positive returns. This involves investing across multiple asset classes, geographies, currencies, and industries to reduce risk and maintain long-term strategy.

2. Active tactical asset allocation: Adjust investments within a diversified portfolio to reduce volatility or capture opportunities over short-term periods (3-12 months).

3. Active security selection: Use global managers and strategies to select the best investments, ensuring potential returns through active research and investment selection.

Importance of diversification

The variability of investment returns can be seen in the table below, which shows how different types of assets have performed across a number of years. It demonstrates that no single asset type consistently comes out on top and reveals how difficult it is to forecast which one will perform most strongly in the future.

Source: Factset, January 2025

This is why, at SPW, we believe in the benefits of diversification, of not putting all your investment eggs in one basket. Quite simply, by holding a range of investments, you are spreading your investment risk and reducing the risk associated with exposure to one single type of asset.

In our view, when it comes to investing, diversification can help steady the ship in choppy waters. Which particular mix of assets is appropriate will depend on your individual circumstances, on your own financial requirements and goals. A good financial adviser can help you ascertain these financial planning needs. They can also offer insights into which blend of investments could potentially be right for you. And that can provide reassurance in times of such uncertainty.