- Scare stories have the potential to spook investors
- But those who invest for the long term can overcome market turbulence
- And holding a diverse portfolio can help minimise the impact of global events
Hardly a day goes by without another potentially panic-inducing headline about the global economy.
Just recently, the value of shares in many well-known companies around the world fell sharply after President Trump threatened billions of dollars in tariffs on Chinese steel, and China said it would retaliate.
It can make you wonder why people risk investing in the stock market at all? Maybe we’re all better off squirreling our money away under the bed? Or is this all just over-dramatic journalists trying to sell more papers?
Let’s look at how these sharp falls in stock markets can sometimes happen, and whether they should concern UK investors.
Trump’s “trade war”
In this case, it was because the China and the US are big steel producers, and the threatened tariffs – a kind of tax to be paid when the steel is exported or imported - would make steel more expensive around the world.
That would mean companies that buy steel to build things - like TVs and phones - would face higher costs.
As a result, they would either have to make their products more expensive, and risk losing sales to cheaper rivals, or keep their prices the same and make lower profits.
Either way, it means less money coming in, and companies that make less money are worth less to investors, so their share can price can go down.
Lessons from history
So, we’ve seen how global events can certainly have an impact on investments like shares in companies.
There is always some amount of turbulence in markets, and history shows us that investors who play the long game can ultimately overcome short-term losses.
If we look at the last recession it was the worst financial crisis for 70 years and worldwide stock markets fell by an average 40% during 2008.
It must have been tempting to just throw in the towel, but investors who held their nerve saw global markets bounce back by nearly 31% in 2009, and grow another 12% in 2010.
How can I minimise my risk?
One of the most effective steps you can take to help protect your investments from instability is to invest in a diverse mix of assets in different countries, so all your eggs aren’t in one basket.
You need a balanced mix of cash, property, fixed interest securities and global equities, this could help to minimise the risk of losses and can often prove more robust during market fluctuations.
At evestor we do all the hard work for you. Our portfolios also include stakes in carefully chosen global investment funds, which hold shares in more than 2,500 different companies in 75 different countries.
And our investment committee meets regularly to review their performance and ensure the allocation of assets is appropriate for our investors’ appetite for risk.
So, you won’t have to worry too much about Trump’s tweets!