Financial markets don’t like fear and uncertainty, which become a vicious self fulfilling prophecy. The more value that’s shed, the greater the fear and uncertainty, as the markets tumble lower and lower.
The falls we’re seeing on global share markets right now are on a scale not seen since the dark days of the Covid induced lockdowns five years ago. This time the panic is being triggered by one thing – US President Donald Trump’s tariffs that he calls “beautiful”.
Beauty of course is in the eye of the beholder, and there’s nothing beautiful about the bloodbath of Wall Street shedding around 10 per cent, or Australian losses of more than 7 per cent since the global reciprocal tariffs from the US were announced.
The tariffs themselves are not a surprise. They were a major part of Donald Trump’s re-election platform where he repeatedly vowed to impose tariffs to pay for tax cuts for all Americans.
The size of the tariffs though has come as a surprise. Many traders also wrongly assumed that tariffs would simply be used as a bargaining tool to get what Donald Trump wants because bluff and bluster is the way he’s previously done business.
This time though the threat is being delivered, with no exceptions. Tariffs are being imposed on every country around the world, friend or foe.
In a direct sense, Australia has gotten off pretty lightly. America is not a big market for our exports, making up around 6 per cent of our trade, so the 10 per cent tariffs we’ve been hit with won’t do much damage to our economy.
The real damage will come from the impact of much higher tariffs on our largest trading China, which has escalated the trade war with the US by imposing retaliatory tariffs on US goods, and now Donald Trump is threatening to hit China again.
That vicious cycle rears its ugly head again, and there are no winners from a trade war, only the prospect of a global recession.
So as fear and uncertainty sends financial markets into freefall, what should investors and retirees, or those approaching retirement be doing, as we see the value of share portfolios and superannuation accounts also plummet?
What we shouldn’t do is panic – which is easier said than done if you don’t have time on your side to wait for markets to come back up, which they will do eventually. History shows that as economies and wages grow, markets rise, despite the periodic falls triggered by wars or pandemics or the complete upheaval of global trade that Donald Trump is trying to engineer.
Do you think the world is heading towards a recession?
If you manage your own investments, this is a timely reminder to consider dialling down the amount of risky assets you hold, particularly if you’re approaching retirement age. Having a cash buffer can also help to avoid having to sell off assets that have seen their value plunge.
Investments are for the long term, and the trend is your friend when it comes to financial markets. What goes down should eventually come back up. It’s just a matter of when and not panicking, so you miss out when the uptick begins.
The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.
