Financial markets typically react negatively to fear and uncertainty, creating a self-perpetuating cycle where declines fuel further fear. Recent downturns in global share markets are reminiscent of the turmoil experienced during the Covid lockdowns, largely sparked by US President Donald Trump’s newly imposed tariffs, which he describes as “beautiful”.
However, the impact on Wall Street has been dramatic, with a reported loss of around 10%, and Australian markets also experiencing over a 7% decline since these tariffs were announced. While tariffs were a known part of Trump’s re-election promises, the scope and application of these tariffs have caught many investors off guard, as they expected bluffing rather than firm actions.
These tariffs are not just directed at adversarial nations; they apply globally, affecting every trading partner indiscriminately. Fortunately for Australia, the direct impact of the 10% tariff is somewhat moderated due to the US accounting for just 6% of its exports. The greater concern arises from the escalating trade tensions with China, Australia’s largest trading partner, particularly as Beijing retaliates against US tariffs, further exacerbating the conflict.
As markets spiral downward, it raises critical questions for investors and those nearing retirement about how to navigate this turbulent financial landscape. The key recommendation is to avoid panic, even though that may prove challenging for those with limited time to recover losses. Historical trends show that financial markets tend to rebound as economies recover, despite short-term declines often triggered by various crises.
Investors, especially those approaching retirement, may want to reassess their portfolios by reducing exposure to high-risk assets and building a cash buffer. This approach can safeguard against the need to sell devalued assets in a downturn. It’s essential to remember that investments are inherently long-term; market corrections are temporary and historically, values tend to recover.
In conclusion, while the current climate appears bleak due to fear of a potential recession fueled by tariffs and trade tensions, maintaining a strategic and measured approach will be vital for investors. Emphasising patience and avoiding panic-induced decisions will better position investors to benefit when the market rebounds.
Please note: This overview is for informational purposes only and should not be construed as personal financial advice. Always consider your individual circumstances and consult a financial advisor before making investment decisions.