On 2 April, U.S. President Donald Trump announced major new tariffs, including a 10% baseline tariff on all imports (excluding Canada and Mexico where tariffs have already been announced), with higher ‘reciprocal’ rates targeting specific countries, e.g. China and the EU.
The announcement of the higher than expected tariffs caused significant volatility in global equity markets with markets reacting negatively, particularly in the US. Whilst we have since seen President Trump announce a 90-day pause on the reciprocal tariffs, except for China, to allow for countries to negotiate lower trade barriers, the baseline rates remain in place. The short term outlook remains very difficult to predict and will likely be impacted by the outcome of trade negotiations and any potential retaliation by other countries, as well as the ongoing unpredictably of the actions taken by President Trump.
This article explains what market volatility means and how long-term financial planning can help you.
What is market volatility?
Market volatility refers to the extent of price changes in financial markets, such as the stock market. When prices rise and fall rapidly within a short period, the market is said to be volatile. This is often triggered by various factors, including political events, economic data releases, interest rate changes, or global crises.
Whilst it may sound alarming, it’s important to remember that market ups and downs are a normal part of investing. However the key is to avoid making impulsive decisions and take a long term view of your investments.
It’s time to stay calm
When markets become unpredictable, having a long-term outlook is key. History shows that markets recover and often deliver growth in the long run. For example, equity markets rebounded after the 2008 financial crisis and the sharp falls seen at the start of the pandemic in 2020, rewarding patient investors.
By thinking long term, you can avoid the trap of trying to “time the market” – buying and selling at just the right moment. Even professional investors find this incredibly challenging. Instead, sticking to a well-thought-out financial plan can help you ride out periods of uncertainty.
Financial planning actions to take during economic uncertainty
What should you do during periods of market volatility? Here’s some practical steps:
- Review your financial goals
Begin by revisiting your financial objectives. Are you planning for retirement, managing your estate, or ensuring a comfortable lifestyle? Understanding your goals will help you decide if any adjustments to your investments are necessary. For example, if you’re already retired, short-term market dips may have less impact on your long-term plans.
- Diversify your investments
Diversification is a powerful tool for managing risk. Your Financial Planning Manager has already recommended an investment strategy to spread risk across different types of assets, industry sectors, and geographical regions. This approach helps reduce the impact of poor performance in any one area.
- Stay consistent with contributions
It might seem counterintuitive, but continuing to invest regularly during volatile periods can be a smart move. This strategy, known as pound-cost averaging, means you buy more shares when prices are low and fewer when they’re high, which can lower your average purchase cost over time.
- Avoid emotional decisions
During downturns, the urge to sell investments and “cut your losses” can be strong. However, selling during a dip locks in losses and prevents you from benefiting when markets recover. Try to stay calm and stick to your long-term plan.
- Build resilience into your finances
While investing is an important part of long-term wealth building, it’s just one piece of the puzzle. To weather economic uncertainty, it’s also vital to build financial resilience:
- Establish an emergency fund: Aim to save at least three months’ worth of essential expenses in an easily accessible account. Six months’ worth of savings would provide even greater financial protection.
- Manage debt: High-interest debt, like credit cards, can strain your finances during tough times. Focus on paying it down to free up cash flow.
- Stay informed: Keep up with financial news and market trends, but don’t let headlines drive your decisions. Understanding the bigger picture is more important.
- Seek financial advice
During periods of volatility it’s important to regularly review your financial plans to make sure they remain on track. Your Aegon Financial Planning Manager will help you to review your investments, assess your risk tolerance, and ensure your strategy aligns with your goals.
The bottom line
Periods of market volatility can be unsettling, but by focusing on your long-term objectives, spreading your investments across different areas, and staying calm, you’ll be able to handle uncertain times with confidence. Remember, investments can go down as well as up and although there’s no guarantee, market drops are often followed by periods of growth.
If you’d like help with your financial planning or want to discuss the investments you hold with us, please contact your Aegon Financial planning Manager, call us on 0800 464 3079*, or request an appointment using the button below. Taking proactive steps today can help you towards a more secure financial future, no matter what the markets do next!
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Market Commentary – Quarter 1, 2025