By Mary Green
Dealing with market volatility after a period of calm growth can be alarming so what is going on and what is the best way to deal with it?
What’s going on
After a relatively stable period over the last two years with pensions and investments growing steadily, President Trump is once more in office. He wants to strengthen manufacturing in the US and reduce the number of imports from other countries. His erratic use of tariffs along with major policy changes have meant that US equities are under pressure. To add to this chaotic mix, he has given Elon Musk an active role in government as a senior adviser running the department of government efficiency (DOGE).
The year started positively for US Markets but since inauguration the US markets have been down by more than 10%. With Tesla (owned by Musk) dropping more significantly due to cheaper Chinese competitors and the reputational damage Musk has caused by aligning with the far right; Tesla’s market value has dropped by more than $800 billion since December.
As a lot of the large funds used for pensions and investments hold a lot of stock American based companies this has meant that for many there has been a drop in the value of their assets.
However, in Europe there is more positive news. Germany has announced a large boost in spending of around one trillion Euros over the next decade. As the largest economy in Europe this will support long term growth in the European area. Hopes for a cease-fire in the Ukraine this year also support lowering energy prices.
In the UK the Bank of England interest base rate currently sits at 4.5% and will continue to reduce slowly which will take the pressure off homeowners with a mortgage. Whilst interest rates will remain at a level where bonds will pay out a reasonable level of income and help to balance against the volatility in the equity market.
China is still on target to grow despite American tariffs as they can diversify their exports, although they are likely to be impacted to be impacted negatively to a certain extent.
How should you deal with it?
As ever a well-diversified portfolio is crucial. Whilst equities have been the focus in 2024 allocation to areas such as commodities, property, infrastructure, cash and fixed income can offset some of the potentially riskier areas of global equity markets.
After two years of sharp inflation declines across developed markets, central banks are finally nearing their inflation targets of 2%. Expectations are that the Bank of England will reduce interest rates incrementally ending this year around 3.75%.
Markets are very sensitive to world events however history has shown that over time the up sides significantly out way the downsides. A good quality adviser should have carefully considered your appetite, capacity and tolerance to risk as well as the length of time you have available for investment. Pensions are a long-term investment and there will be times you will be taking income from your pension when your assets are valued at a lower level and some when they are valued at a higher level. If you are concerned contact your adviser who will explain how they have constructed your lifetime cashflow plan and how changes in the stock market have been considered when planning your income for now and the future.
As an investor it is important to note that selling your funds based on market volatility is rarely a good strategy. Your adviser will monitor your funds on an ongoing basis and will recommend any changes required at your regular client meetings.
The value of units can fall as well as rise, and you may not get back all of your original investment
A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
