Investment Market Update - 7 April 2025 (Trump's Tariffs)

If you have been paying attention to the news in recent weeks, you will know that many of the headlines have involved the introduction of US tariffs.

A tariff is a tax imposed by a government (in this case The US) on imported goods. The primary purpose of a tariff is to make imported goods more expensive, which can encourage consumers to buy domestically produced goods instead.

However, history has shown they often lead to inflation which can bring about many detrimental effects including:

• The erosion in the value of savings.

• Cost of living challenges.

• Higher interest rates.

• Share market declines in certain circumstances.

How have markets responded?

Most investors have a high portion of their investments in asset classes like cash, fixed interest products, shares and property.

Whilst US and Australian Shares are down between 6 - 14% over the last month, it's important to note that over the last 12 months, they are only down between 1 to 5%.

US Shares

Australian Shares

Australian Government Bond Index

Bond markets are behaving rationally by providing a hedge (protection) against share markets declines. You can see this visually, as the Australian Share market has dipped over the last month, the Government Bond Index has increase by a similar level. When share markets dip, investors often retreat to the safety of bonds which increases their attractiveness and price.

Australian Listed Commercial Property

Listed property has had a strong correlation to the share market over the last 12 months.

So, what does this mean for me?

The same principal applies today as it did two months ago when investment markets were at their peak: Your investment mix should always reflect your investment timeframe.

To simplify things, clients are usually either in accumulation phase or drawdown phase.

When you are in accumulation phase you are building up your wealth (at the very least by mandatory employer super contributions of 11.5% per annum). As you are still working, you don't require access to your investments and therefore you don't need to sell any investments whilst the market is in a dip. In fact, you could well consider these market dips as opportunities to buy investments at cheaper prices.

When you are in drawdown phase (most commonly in retirement), investment market dips can be more worrying. However, this is exactly why you should begin to incorporate a higher portion of cash and fixed interest products into your investment and super portfolios in the years leading up to retirement. Having a greater allocation in cash allows you to use these funds to fund your living expenses whilst you wait for the share market to rebound. Meanwhile, as illustrated above, bonds can provide protection against share market declines through their inverse relationship.

Where to from here?

It's impossible to predict where markets will move to from here. However, we can use history as our best guide. The following graph produced from Vanguard shows the different returns of each asset class over the last 30 years to 30 June 2024.

The important take outs are:

• Over the long term all asset classes bounce back from dips.

• Asset classes (particularly shares and bonds) often work in inverse making diversification imperative to your portfolio.

• The highest returning asset classes (shares and property) are great if you have plenty of investment timeframe, however, if you are within 3 years until you need access to your money (for instance retirement), you should consider lowering your risk tolerance. If you don't you could be stuck in a position where you have to lock in capital losses when markets dip.

If you need help, book in a call with us today.

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The purpose of this blog is to provide general information only and the contents of this blog do not purport to provide personal financial advice.  We strongly recommend that you consult a financial adviser prior to making any investment decision. The contents of the our blog does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions.