How to invest successfully in challenging times

Donald Trump’s imposition of tariffs has caused widespread uncertainty and has shaken financial markets worldwide. But while some investors will be concerned, this fundamental change in the global trade environment means there are potential opportunities to be seized. Indeed, it’s at times like this when a proactive approach to investment comes into its own.

You may be self-managing your investments, or you may have decided to seek advice or discretionary management. Either way, a diversified approach is the way to build and manage a robust portfolio. In this article, we look at some approaches for coping with volatile markets.

1.      Hold your nerve

Markets rise and fall, but the overall trend is upwards. For experienced investors, a fall in share prices is often viewed as positive. It brings opportunity to buy in a dip in the market, with greater potential for rises in the future. Those who are prepared to invest in uncertain times may reap greater rewards. The current volatile situation is due to a political catalyst, rather than a fundamental economic situation. This means that a climbdown on America’s stance to tariffs could result in a very quick and lasting recovery in markets. While there’s no guarantee of this happening, the greatest danger at present is to be out of the market when sustained recovery occurs.

2.      Take a strategic approach to risk

An investor who will not need to access their funds for a long time can take a more relaxed approach to volatile markets. Those who need to access funds in the near future – especially those nearing retirement – need to be more cautious. Even so, it may be possible to divide assets into short-term and longer-term funds. That way, one can guard against short-term risk while maximising returns.

3.      Diversify

Diversification is key to lowering risk and promoting stable returns. This means dividing investments across asset classes (such as shares, fixed interest and commodities), sectors and geographies. Some may underperform during market dips; others may hold their value or even thrive. For example, you might decide to invest in two sectors where there is little correlation. Over recent months, gold has reemerged as a strong haven during and its value has reached an all-time high.

Government and high-quality corporate bonds are traditionally a safe haven in turbulent times, as they tend to perform well when risk assets do not. However, this is not always the case, as each investment crisis has its own character. Indeed, one consequence of Trump’s tariffs has been to undermine the safe-haven status of US Treasury bonds.

In recent years, there has been a move to investing in private markets, rather than listed stock exchanges. This provides exposure to smaller companies with potential for significant growth. However, private markets are inherently higher risk and unlikely to be suitable for inexperienced or more cautious investors.

4.      Should you switch investments into cash?

There are times when cash can be an effective short-term safe haven, or a proxy for fixed income assets. However, markets can rebound strongly and may catch investors out, resulting in crystallisation of losses and then opportunity loss.

In a recent article on investing a lump sum, we compared the outcome of putting cash in a savings account versus the stock market. If you had put £100,000 in a 90-day notice savings account 25 years ago, it would now be worth £164,931. This is £22,603 less than the rise in inflation, so the value of your money would have fallen in real terms. In comparison, £100,000 in the FTSE All Share Index would now be worth £356,696.

5.      Focus on quality investments

During extended periods of uncertainty, robust companies with stable flows and a track record of resilience can outperform more growth orientated companies. However, such ‘high value’ companies can underperform during growth periods and rising stock markets. It is therefore important to either balance portfolios or pivot when markets recover.

6.      Choose to have your investments are actively managed

A wealth manager can help you to clarify your long-term goals and form an effective investment strategy. Since many wealth managers have discretionary powers, they can also actively manage your portfolio on a continuous basis. A more traditional financial adviser may not be independent or have specialist investment qualifications. This means that they are more likely to take a longer term buy and hold approach, which may exacerbate volatility during uncertain times.

At AJB Wealth, we are truly independent wealth managers with discretionary powers. This means that we can, if appropriate, manage our clients’ portfolios within agreed parameters whilst having their authority to take everyday investment decisions. As a result, we can rapidly respond to changes in the markets and make adjustments as required. While a client’s long-term goals are of overriding importance, there are times when it makes sense to take shorter-term tactical positions.

7.      Play the long game

Be aware of the psychology of investing. Loss aversion means that many investors tend to focus on the avoidance of loss more than the achievement of gains. It’s important to keep your long-term goals at the forefront of your mind. Trying to avoid temporary losses now may reduce the chance of making gains in the future.

At AJB Wealth, we spend time with prospective clients to ensure that we fully understand their objectives and personal attitude to risk. This way, we can work with them to construct portfolios which are suitable for their risk appetite and capacity to accept capital fluctuation. This results in an investment strategy that is pertinent and will allow a client to sleep at night, knowing that their financial security is in good hands.

AJB Wealth is well placed to help with all aspects of financial planning and investment. To discuss your situation, please book an obligation-free meeting, or call us on 01428 774 070.

Important: The content of this bulletin is for general consideration only and does not constitute advice. No action must be taken, or refrained from being taken, without advice. This company accepts no responsibility for any loss occasioned as a result of any such action, or inaction. You are also reminded that investments can fall, as well as rise. And in the event of early encashment, you may receive less back than your original investment.