Tariffs, Trump, and volatility come and go — your financial plan is built to last

President Trump’s re-election and renewed push for aggressive trade policies—particularly tariffs—has reintroduced volatility into the market.

While investors may be tempted to adjust their portfolios in this type of market environment, no one knows how the markets will perform in the short term, and, in many cases, timing the market for exit and then re-entry simply results in selling low and buying high.

Trump’s first term showed that while his negotiation style is confrontational, his end goal is to drive better economic outcomes for the U.S. Through a mix of tariffs, tax cuts, and deregulation, he delivered an environment that supported strong equity market growth.
His first term as US President tells us he ultimately wants to see shares up, not down.

What we do know is that dozens of potential factors can affect the market, making it difficult to base market strategy on a single factor such as the tariffs.

In fact, Vanguard found no consistent pattern between asset returns and individual policy announcements, including tariffs.

For context, The Vanguard Group manages over AUD$16 trillion in assets and is the second largest fund manager in the world.

Investors who try to correctly time both a market exit and a return run the risk of missing out on strong performance and impairing their long-term investment success.

Time in the market beats timing the market

📈 $1 invested in the S&P 500 on 12/31/1949 would have grown to $365 today. Pretty incredible.

That’s if you sat and did nothing for the entire 74-year timeframe.

But what if you missed some of the best days trying to time the market?
– Missed best 50 days: $1 only grows to $26.73
– Missed best 100 days: $1 only grows to $4.76

The success of financial markets over the long term is not driven by short-term events, but rather by economic growth, interest rates, productivity, innovation, and dozens of other variables.

The best days are usually not too far behind the worst

The stock market has bad days, but they aren’t always indicative of trouble ahead.

In fact, the best and worst days often happen around each other.

Here is all-time chart which shows you how close the best and worst days in the market can be.

Pulling out of the market or changing your investment strategy may reduce more than just your stress levels. It could reduce the long-term benefits of investing.

How your portfolio is currently positioned 

In our actively managed global shares strategies, our specialist managers in aggregate hold an underweight position to US shares.

They have been mindful of the growing risks posed by the dominance of the US share market on the back of investor enthusiasm for American technology stocks, especially Apple, Microsoft, Google’s parent Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla.

We maintain our exposure to alternative investments, like insurance related investments, which provide an attractive source of diversification given their extremely low correlation with share market movements.

During the Global Financial Crisis and the COVID crash, shares fell but insurance-related investments performed far better providing a ballast for portfolios.

Private equity represents another important source of diversification because returns from this asset class are not directly linked with the performance of listed global shares.

We also allocate to real assets via unlisted infrastructure, and unlisted property investments, which provide diversification benefits, along with long-term, stable and predictable cashflows often linked to movements in inflation.

Through our dedicated in-house derivatives capability, we have implemented strategies for some of our portfolios that provide a level of downside protection in the event of a severe correction in US share markets. Similar strategies were used during the 2020 COVID crash and served our investors well, we believe.

Times like now also enable investors with long time horizons to buy good assets at more attractive prices too, and we are scouring markets for opportunities created by recent disruptions.

Positions like those discussed in this note provide high levels of diversification, and, in our view, form important parts of well-managed portfolios and are especially relevant during the current market climate.

Peter Lynch
Considered the most successful fund manager ever

“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”

That’s it for this newsletter. I hope it’s been informative and provides you with some food for thought.

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Mike Sikar  |  Principal Financial Adviser & Mortgage Broker

A: Level 11, 22 Market Street, Sydney 2000
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