A letter from Mark and Olivia
Our Thoughts on the Status Of The US and it’s Impact on Portfolios
The United States, and more specifically Donald Trump, have dominated the news since the change of administration, which has led to questions from our clients.
The topics on everyone’s lips seems to be the following:
– Should we be taking our money out of the US and international markets and investing more of our funds in the domestic market?
– Or should we be taking our money out of the market all together and leaving it to rest in the bank?
– Is there a cause for concern?
– Will it affect me?
– What should I do?
Hopefully, if these are some of the questions you’ve been asking yourself, the following article will help clear that up for you and give some insight into the realities of what’s been going on in our global economy and the impact it may, or may not have, on our portfolios.
Mark’s Thoughts on the Situation in the US and Navigating Market Volatility
Lately, many people have been asking what they should do now that the US seems to be taking a very different path from what we’ve always known.
Right now, we’re seeing a shift where countries are focusing more on their own economies rather than working as part of a global system.
This is being driven in part by President Trump, who has been pushing for higher taxes (tariffs) on goods coming into the US from countries like Canada, China and Mexico.
These changes are making it more expensive for companies to trade across borders, which affects how businesses operate and how much things cost.
When prices go up, people may have less freedom to spend as they did before. This doesn’t mean trade will stop, but businesses will have to adjust to the new rules, and markets may be a bit shaky during this transition.
The key takeaway is that while change brings uncertainty, it doesn’t mean everything is falling apart.
Investors and businesses will adapt, and over time, things will settle into a new normal.
The best approach right now is to stay informed and avoid making big, rushed decisions based on short-term news.
Most of our clients are invested in index funds because they offer a strong balance of performance and cost.
The fund managers handling these investments are well aware of the changes in the US and are actively adjusting portfolios in response.
For example, Tesla’s reputation shift has led to heavy selling, with its stock down 45% – a clear sign that fund managers are reducing exposure.
However, this does not mean all US companies have lost value or that we should exit US investments entirely.
Instead, portfolios are being strategically adjusted to manage risk while maintaining long-term growth.
Our approach remains focused on balancing domestic and international exposure, using bond trusts, equities and commercial property to preserve wealth and generate steady returns – not chasing growth at all costs.
Thoughts from Dimensional Fund Managers
Dimensional fund managers are used in many of your portfolios so we thought it might be valuable to hear their thoughts on the state of the US and its impact on investing.
Here is a link to the article if you’d like to read it: https://www.dimensional.com/us-en/insights/quarterly-review-after-a-promising-start-to-the-year market-gains-fade
Trump’s Influence on Market Changes: What’s Happening and What it Means for Investors
The stock market has faced turbulence recently, with major indexes like the S&P 500 and Nasdaq experiencing sharp swings.
While the year started strong, concerns over the economy, trade policies, and competition in the artificial intelligence (AI) space – largely influenced by Donald Trump’s policies – have led to declines by the end of the quarter.
Key Market Trends
– The S&P 500 hit record highs early in the year but ended the quarter lower.
– The Nasdaq, which includes many tech companies, dropped sharply due to concerns about AI competition.
– Stocks in other countries performed better than U.S. stocks, highlighting the importance of global diversification.
– The U.S. bond market performed well
How Trump’s Policies Are Impacting Markets
One of the biggest drivers of market uncertainty is Donald Trump’s aggressive stance on trade.
His administration has imposed or threatened tariffs on key trading partners, including China, Canada, Mexico and the European Union. These tariffs make goods more expensive and disrupt supply chains, leading businesses and investors to worry about long-term economic impacts.
In addition, Trump’s unpredictable policy shifts have increased market volatility.
His focus on bringing manufacturing jobs back to the U.S. has added pressure on companies with global operations, making investors hesitant about certain industries.
The Impact of AI and Tech Stocks
The tech sector, which has been a major driver of stock market growth, has taken a hit.
Companies like NVIDIA, a leader in AI, saw their stock value drop sharply after news that a Chinese company, DeepSeek, developed an AI model with significantly lower investment.
Investors reacted by selling off shares, further fuelling uncertainty in the sector.
Trump’s trade policies targeting China also put additional pressure on tech companies relying on global supply chains.
How Should Investors Think About This?
Short-term market movements are normal. Stocks fluctuate and recent declines don’t necessarily mean long-term trouble.
Diversification matters. Markets outside the U.S. have been performing better, showing why it’s important to have investments in different regions.
Trump’s trade policies will have lasting effects. Businesses and investors need to adapt as tariffs and new regulations reshape the global economy.
Bonds can provide stability. The bond market performed well, helping balance the risk of stock market declines.
Looking Ahead
With Trump’s trade policies reshaping global markets and economic growth slowing, market ups and downs are likely to continue.
However, history shows that well-diversified, long-term investment strategies tend to withstand political uncertainty better than reacting to short-term news.
While industries like technology may experience more volatility, the overall market remains resilient.
Staying informed and maintaining a balanced portfolio is the best way to navigate these uncertain times.
Your Cheat Sheet – Our Answers to Your Biggest Questions
Should I sell my international holdings?
At the present time, the short answer to this question is no.
We don’t organise our portfolios to have a high concentration in any one country’s market, so yes the international markets will be impacted by the current volatility but no, that doesn’t mean that your portfolio shouldn’t have any international representation.
Would my money be better off sitting at the bank?
Again, at present time, the short answer to this is no.
All the portfolios are weighted according to personal risk tolerance, and these events of recent are just the bottom of the trough and will eventually recover in the long term.
All the index funds that are labelled as “international” holdings would have traditionally featured heavily in the US market, but these managers will be adjusting their portfolios to feature the best exposure to the US market, which may lower exposure for the short term.
There are many great economies in our global network and we expect fund managers may lean more into these in the short term.
What is our plan in the short term?
Whilst we all ride this wave of uncertainty as to the movements of other countries we may rebalance your portfolio to lean more heavily into the domestic market than the previous few years.
This will help to smooth out some of the volatility in the portfolios until global relations are on more steady ground.
My account value has gone down, have I lost all my money?
Certainly not, you have not lost all your money and markets will come back up.
Changing markets will see the value of your investments go up and down over time.
Covid, although it saw a short period of suffering, was generally a good time for markets and generally everyone saw an upward trend in their accounts leaving everyone feeling relaxed.
Since the announcements from the Trump administration, there has been lots of input from media which has negatively influenced markets.
This period of time is just a contraction of the market.
Imagine a balloon that is deflating… it hasn’t popped – it just has less air right now. So those who wait for the balloon to blow back up will be better off than those who pop it.
Do we think the US economy is collapsing, or that Trump’s actions might cause a collapse?
No, even with Trump’s actions on trade, at this point in time we don’t believe that the US is going to suffer an economic collapse and fall from being a superpower to collapse.
Trump is trying to move the country into becoming what is known as an autarky, which is a completely self-reliant country, but in this modern world this is almost impossible.
Countries of today are all intertwined and reliant on each other for one thing or another.
A good example of this is that the US relies heavily on power coming from Canada, and cannot sustain their population without this. Therefore, Trump cannot just cut Canada off from their economy.
Trump is exercising his power within the global economy but it doesn’t positively impact the US to burn their bridges with all their partnering nations.
We were planning some significant expenditures in the near future, do we need to put these off?
In short, generally speaking no you do not need to cancel your plans to accommodate this change in markets.
In each portfolio we have allocated a portion of the portfolio to shares, or share funds, to promote growth to help you maintain your capital (your overall balance).
The other portion of your portfolio is dedicated to defensive assets, this includes cash, bonds and term deposits.
The reason we do this is to prevent having to draw down on funds which are suffering during a down turn.
So if you’d like to withdraw some money for a major expense in the next 12 – 18 months we will likely be using the funds from a cash or bond sale to fund this so that we do not have to sell your shares at a low point.
When the markets come back up we may rebalance to reallocate some funds back into the defensive side of your portfolios.
Selling down your growth portfolios during a down time isn’t ideal but is not the end of the world if it is necessary.
