Financial Market Volatility

by Philip Oxley
Partner, The Spectrum IFA Group
                            www.spectrum-ifa.com
Tel: +33 (0)7 69 32 22 02

With markets reeling in response to the newly announced “Liberation Day” tariffs, it’s completely natural to feel unsettled.

Portfolio values have taken a hit, and headlines are filled with uncertainty. I wanted to share a brief overview of recent developments and what they mean for long-term investors.

Maintaining Discipline

While it’s tempting to act, history tells us that maintaining discipline during market turbulence is not only prudent, but it’s often the most rewarding approach over the long run. Despite the current volatility, past market crises — from the Great Depression and Black Monday to the Dotcom collapse, the 2008 financial crisis, and the COVID-19 selloff — all eventually gave way to full recoveries and even stronger growth. Markets may falter in the short term, but they have proven to be resilient over time. That’s why keeping a long-term focus, rather than reacting to short-term noise, is important during periods of uncertainty.

Common Investor Mistakes

1. Retreating into cash

When markets tumble, it’s understandable that some investors consider moving into cash to preserve capital. But that often locks in losses, takes place too late (once significant falls have already occurred) and sacrifices the upside that typically comes during the early stages of recovery, a phase easily missed by waiting on the sidelines. Remaining invested through challenging periods has typically delivered better long-term results, hence the often-coined phrase that successful investing is about “time in the market and not timing the market”. Historically, staying invested has proved to be a more effective strategy for both capital preservation and long-term growth.

2. Changing funds or provider

It’s also common during downturns to consider switching funds or providers in search of better outcomes. But providers are equally affected by systemic downturns, and changing mid-crisis can add costs, lost momentum and cause disruption with little to no benefit. Fund managers are closely monitoring events, adjusting funds as appropriate and allowing them to navigate through these conditions is the most effective strategy.

A Closer Look at the Tariffs

The “Liberation Day” tariff framework signals a sharp turn towards economic protectionism. It introduces a blanket 10% tariff on all imports, followed by additional “reciprocal” tariffs based, not on the level of tariffs each country applies to US imports, but on the size of a country’s trade surplus with the US. For example, China faces a 34% tariff under this model, while the UK will see only the standard 10% due to its smaller trade imbalance.

This makes little sense as some countries are simply better at making or growing things or can do so more cheaply than the US. Therefore, it makes economic sense for the US to buy from these countries rather than try and make or grow those items in the US. And some countries may not want or need what the US sells! This is how global trade has worked for decades. In addition, the Trump administration has entirely ignored the import and export of services – focussing entirely on physical goods.

Why Markets Are Reacting

These tariffs are politically motivated and have been implemented aggressively, introducing a high level of unpredictability. And if other nations retaliate, as China already has, this cycle could further destabilise markets and global economic growth. The financial markets dislike uncertainty and that’s exactly what these tariffs are generating. By raising the cost of goods, complicating trade flows and provoking the risk of retaliatory action from trade partners, the policy acts as a tax on the global economy and this has created the sharp market reaction and levels of investor uncertainty.

Enduring Principles

No-one is entirely shielded from market declines, but the best strategy isn’t to react impulsively despite the dramatic headlines. The formula for long-term investing success hasn’t changed: stay diversified, stay patient, and stay committed to a plan that reflects your long-term goals. Market downturns can feel intense, but they’ve never been permanent. Short term volatility often proves to be largely immaterial in relation to long term investment success. Investors who resist the urge to make snap decisions during turbulent times and stay disciplined are the ones who will come out stronger on the other side when stability and growth resumes.

If you have any questions in relation to the above or want to discuss anything with me, please do not hesitate to get in touch.

If you have any questions in relation to the above or want to discuss anything with me, please do not hesitate to get in touch.

  This article is intended for general information only, reflecting the views of the author, and should not be construed as investment advice . 

If there are any subjects you would like us to cover in one of these articles or if you would like to contact one of our advisers for a financial consultation (no fee), then please get in touch at info@spectrum-ifa.com