Donald Trump trade war hits UK: What you should do with your money and investments now

Financial planner Warren Shute answers your question on whether you should do something different with your investments after Donald Trump spooked global markets

Donald Trump has made global markets jittery with his tariffs turmoil, sending share prices tumbling.

This week a new client at my financial planning firm – concerned that his portfolio would reduce in value – asked me if the stock market was going to fall much further. Invariably, the question behind the question is: “Should I be doing something different with my portfolio?”

In other words, this is just another version of the market-timing question, dressed in different clothes. Should I sell stocks and wait for a more favourable outlook to buy them back? Or more precisely, can we find clear trading rules to tell us when to buy or hold stocks, when to sell, when to admit our mistakes, and so on?

The lure of that winning trading strategy is seductive – if only we could find one, our portfolios would soar. Motivated by the substantial payoff associated with successful timing, for years researchers have examined a wide range of strategies. They have analysed earnings, dividends, interest rates, economic growth, investor sentiment, stock price patterns and more.

The money management industry is highly competitive, with more stock mutual funds and Exchange Traded Funds (ETFs) available than actual listed stocks. So if someone were to have developed a profitable timing strategy, we would expect to see some funds employing it with successful results.

Successful timing requires two correct decisions – when to reduce the allocation to stocks, and when to increase it again. Watching a portfolio shrink in value during a market downturn can be discomfiting, but investors seeking to avoid the pain by temporarily shifting away from their long-term strategy may wind up trading one source of anguish for another.

The upsurge in prices from their lows often takes many investors by surprise, and they find it extraordinarily difficult to buy stocks that were available at sharply lower prices a few weeks earlier. The opportunity cost can be substantial. In the 20 years up to 2024, the world stock market – measured by the MSCI world index – would have returned on average 10%pa, and the American S&P 500 index an average of 12%pa, in pounds sterling.

But during this 20-year period, missing the best 15 days would have shaved the return down to around 6.5% – an alarming reduction. Add to this the likely extra transaction costs and potential tax consequences of a short-term trading strategy, and the odds of adding value through market timing grow even slimmer.

When the news headlines alert you that everyone is selling, remember that for every seller there is a buyer. The smart investors are the ones buying from those who panic and sell. As one financial planner observed: “A portfolio is like a bar of soap. The more you handle it, the less you have.”

Trust in the capital markets and, when you invest, time in the market is more critical than timing the market. Any money you plan to spend in the next five years should be held in cash or short-term fixed income. If your money is not required there should be no need to change your asset allocation – this time will pass.