The first 100 days of the Trump administration has certainly created consternation across the world, as Donald Trump’s implementation of tariffs – which have been on again and off again and are currently suspended for most countries at the time of writing – have spooked world markets.
The latest shock to the Dow Jones and the S&P 500 came from Donald Trump’s threat to remove Jerome Powell, head of the Federal Reserve, from his post. But again, at the time of writing, he had walked back from that too. That said, things are changing so quickly at present, there is no telling what may have happened by the time you read this.
So, the only thing you can really do is work on the basis that markets are going to be volatile for the foreseeable future, and even if they have gone up in recent days, all it takes is for another shock from the Trump administration or elsewhere to shake things up once again.
How to deal with market volatility
As markets go up and down at pace, it can be tempting to make knee-jerk decisions, especially if you’re seeing your investment portfolio fall like a stone. But remember, the only time you actually lose money, is when you crystallise a loss.
If you have, say, £150,000 in a portfolio, then seeing this fall by 10% for example to £135,000 could be very concerning. But panic selling is not the answer, as you will then no longer be invested and cannot benefit from any subsequent market rise. If you stay invested, then when the market recovers, you will see the value of your investments rise too.
This could take some time, especially if there is little in the way of good news for a longer period. But as the traders build in some elements of the uncertainty we are currently seeing into their forecasts, hopefully the volatility will decrease. Only time will tell whether this will happen.
Using the volatility to your advantage
One thing to bear in mind is that if you have money available to invest currently, then you are likely to benefit from the volatility we are seeing. In essence, when the markets fall, you are effectively buying your investments at a sale price and will see your money grow more quickly when markets rebound.
For example, let’s say before the market fell, the shares or units you wanted to buy cost £10 each, and you have £100 to invest. So, you would be able to buy 10 shares at this price. But if the market fell by 20%, then the shares would fall in price to £8, and investing the same amount would give you 12 shares instead of 10, with £4 left over.
If the share or unit price returned to its previous level, then in the first example you would have £100 once again. But in the second example, you would have £120 when you had only had to invest £96 at the cheaper price and still managed to get two more shares.
Investing regularly can smooth out the ups and downs
The easiest way to make the most of the volatility is by investing regularly in the markets, as that way you can buy on the ups and the downs. Timing the market is very hard, and anyone who waits until ‘the right moment’ is likely to miss out on the best days to make returns on their investment.
Calculations from Fidelity Investments show that since December 31, 1992, if you missed the 30 best days in the FTSE100, you would have seen your investments grow by just 81% to April 7, 2025. Missing the five best days would have seen returns of 466%. But if you had stayed invested for the whole period from 1992 to April 7, 2025, you would have 763% more than you invested in the first place.
So, if you split your investment over a period of, say, 12 months, and drip-feed it into the markets, then you will be investing at whatever price the market happens to be on the day. Some days you will get more for your money, other days you will get less. But over time, the likelihood is you will gain more, because being in the market consistently has proven historically to be more important than trying to time the market.
