Global share markets slumped last week following the announcement of U.S. President Trump’s ‘fair reciprocal tariffs’. While the full implications of these tariffs are still unfolding, their announcement has already sparked a wave of market uncertainty that investors cannot ignore. Whilst it can be painful to witness the recent market downturn, understanding how to respond to volatile markets is crucial.
The global financial landscape is no stranger to volatility. In recent times we have had the steep fall of March 2020 as COVID unfolded, the subsequent V-shaped recovery, then the return of high inflation in 2022, followed by the ‘soft-landing’ of easing inflation and low unemployment.
What’s Happening with Trump’s 2025 Tariff Announcements?
In early 2025, Donald Trump announced a new series of tariffs aimed primarily at China, as well as some other key trading partners. These tariffs were part of a broader strategy to address perceived unfair trade practices and bring more manufacturing jobs back to the U.S. While the specifics of the tariffs are still being refined, markets have already reacted with a mixture of concern and uncertainty.
For Australia, the impact of these tariffs will likely be felt on several fronts. With China being Australia’s largest trading partner and the U.S. being another critical market, disruptions in trade flows or increases in production costs could affect both Australian exporters and multinational corporations with significant exposure to these economies.
How Should Investors Respond to High Market Volatility?
Though tariff announcements and the resulting market volatility can be unsettling, investors have a number of strategies at their disposal to navigate these uncertain waters. Here are several ways investors can react to the latest round of tariff announcements:
1. Stick to Long-Term Goals, Don’t Panic
It’s essential for investors to remain calm and avoid making decisions based on short-term volatility. Tariffs and trade tensions, while impactful, are often just one element in a broader market landscape that can be unpredictable in the short run. For those with long-term financial goals the key is to stick to your investment plan and avoid panic-selling.
Even though markets are reacting to the uncertainty caused by the tariffs, history has shown that in the long run, markets tend to recover from such shocks, especially if the economic fundamentals remain strong.
2. Understand your risk profile
All investments carry some risk. How much risk you’re willing to accept will be influenced by your financial situation, family considerations, time horizon and even your personality. If market volatility has caused you to reassess the way you feel about risk, it’s important that you understand your current risk profile and investment allocation. If you have a financial adviser, it’s important to discuss any necessary changes to your financial plan.
3. Diversify Your Portfolio to Mitigate Risk
Diversification is one of the most effective ways of managing volatility. It can help deliver smoother, more consistent results over time. Your investment may benefit by being spread across a variety of asset classes, including shares (domestic and global), fixed income, cash, direct and listed property and alternatives. This diversification should help soften the effects of any share market falls as some asset classes often tend to do well whilst others are struggling. Also, spreading your assets around means you are less reliant on any one asset class at any particular time.
4. Understand the implications of selling
Before you withdraw from an investment you should understand all the implications, risks and costs involved.
- Crystallising losses. If the value of your investment is falling, you are technically only making a loss on paper. A rise in prices could soon return your investment to profit without you doing anything. Selling your investment makes any losses real
and irreversible. - Incurring capital gains tax (CGT). Make sure you know what your CGT position will be before selling any asset.
- Losing the benefits of compounding. If you’re thinking about making a partial withdrawal from an investment, remember that it’s not just the withdrawal you lose, but all future earnings and interest on that amount.
6. Capitalize on Dollar-Cost Averaging
If you are an investor looking to buy during times of volatility, dollar-cost averaging (DCA) is a strategy worth considering. This approach involves investing a fixed amount at regular intervals, regardless of the market’s ups and downs. By investing consistently, you avoid the temptation to time the market and reduce the risk of making large investments at inopportune times. DCA helps smooth out market fluctuations and allows you to take advantage of lower prices during market dips, which may present buying opportunities.
Conclusion: Navigate Volatility with Strategy and Patience
The 2025 tariff announcements by Donald Trump have once again brought significant volatility to the markets. While it’s understandable to feel uneasy about the immediate impact of these changes, it’s essential to maintain a long-term perspective and focus on strategies that will help you weather the storm.
Remember that market volatility is a natural part of the investing cycle, and responding with a calm, strategic approach is the best way to achieve long-term financial success.If you’re uncertain about how to adjust your portfolio or need personalized advice, speaking with a financial adviser can provide valuable insights tailored to your individual circumstances.