US President Donald Trump has now announced the widely anticipated, far-reaching tariff increases, which have been awaited with concern, fear, and perhaps a little hope that it may be less bad.
These hopes remained unfulfilled.
The announcement includes a minimum tariff of 10% on all imports. The tariffs for goods from the EU are 20%, 24% for Japan and 34% for China. Cars are generally subject to a 25% duty.
It is a day of liberation for the USA, said the US president.
Well, whatever it was, it was probably no joy for the global stock markets.
In particular, futures for the US indices were deep in the red after the tariffs were announced.
It is events like this that scare private investors.
Many private investors often have a strong focus on US equities. How could they do otherwise, since even broadly diversified ETFs such as those on the MSCI World have a large proportion of US equities?
The ten largest positions alone account for 25% of the entire index and are all from the US (Apple, Tesla, Nvidia, Microsoft, Meta, etc.).
I am familiar with market phases like this and have often gone through them with my portfolio.
And there is, hopefully, a message of encouragement. All the ups and downs are part of the game. And the rules are easy to understand. One of them is:
First comes the pain, then the money.
This volatility in the stock markets is necessary because in the end, the return always reflects the risk at the same time.
In a world without risk, there would be no return either.
Besides, a drawdown in the portfolio acts as a booster in the next rally if you continue to stubbornly and steadily shift capital into equities.
In percentage terms, my portfolio has never been as underwater as it was during the coronavirus crash. In February and March 2020, my portfolio lost almost 10% of its value each month.
It hurts when the plus gets a little smaller every day and you even slip into the red.
That happened to me in 2020. My portfolio was in the red by almost a five-digit €/$ amount.
From a five-digit profit to a five-digit loss in 60 days…
And now, five years later?
Well, the 2020 dip is still visible. But oh boy, it is so insignificant in the long-term view that my portfolio is one of the last things I think about when I think back to 2020.
I started investing sometime around 2014/2015, and since then, I have seen countless hiccups, of which the Corona crash was probably the worst.
But let’s face it.
It could be much worse.
We are currently still very close to the all-time highs of the indices. And we are looking back on half a decade of outstanding stock market years.
Last year, my portfolio rose by more than 20%. But those were no normal conditions either.
Valuations of many stocks were already high and with the announced tariffs, it will be difficult for many companies to maintain the expected sales and profit increases.
For example, the tariff for goods from Vietnam is 46%.
This will hurt Apple because, like many other tech companies, the company has relocated production from China to Taiwan.
In short, here we are, in a new reality and it remains to be seen whether reality will not shift even further in the direction of escalation.
The most difficult thing for investors in such a situation is certainly to remain calm.
But it is precisely in this challenge that the key to long-term success lies.
Unfortunately, investors always forget that discounts are only available when it hurts. In times of euphoria, favourable opportunities are rare – true bargains arise in moments of fear and uncertainty.
Phrases like ‘buy when the cannons thunder’ or ‘buy when there is blood on the streets’ are to be taken literally.
They mean that investors must have the courage to act when everyone else is panicking and selling. But therein lies the challenge: gut feeling screams for safety, while the best opportunities are hidden in uncertainty.
Long-term market success requires not only analysis and strategy but also psychological resilience.
Not everyone has this ability.
Investors must be prepared to swim against the tide and control their own fears. Those who understand this realise that true investment opportunities often only become visible when it seems almost unbearable for most people.
In the long term – and I’m not talking about the next 12 months, but rather the next 10 to 20 years – equities will rise.
It is very unlikely that you and I will have the misfortune to slip into the period when the progress and progress of our world, as reflected in the stock market, no longer comes into play.
This may not apply to all stocks and companies.
As always in times of disruption, there will be individual stocks and companies that will be crushed by the challenges.
But other companies will come through this phase and reward investors with handsome returns on the way up.
Remember, companies like the dividend aristocrat Procter & Gamble have lived through many political and economic crises. Tariffs, even if they are high, won’t change that.
Procter & Gamble last raised its dividend in February by 5%, following increases of 7% in 2024, 3% in 2023 and 5% in 2022. Over the years and decades, the compounding effect takes hold and you will receive enormous sums in distributions.
Yes, boring dividend stocks are not really in demand in times of tech high flyers and the hunt for the next tenbagger.
But I love such stocks and that’s why they are the main focus of my portfolio. This ensures that I receive a growing stream of dividends every month.
At the same time, dividend stocks cushion bear markets, as growth stocks, in particular, suffer in such market phases.
And if the day should come when my portfolio is in the red, there are a few simple but proven ways to keep a cool head.
The first and simplest thing is to not look at your portfolio. Emotional decisions are the biggest enemy of a successful investor. The temptation to panic-sell or make frantic adjustments is great – but you will usually regret such ad hoc decisions later.
Instead, it helps to have faith in a forward-looking strategy. If you have a plan for crises in advance, you just have to act consistently in turbulent times. I always have a watch list of companies in which I would like to invest in crises. At the same time, I identify shaky candidates in my portfolio – positions that I might reduce to redeploy capital into better opportunities. If a market-wide sell-off results in a more attractive risk-return ratio, I implement my plan without being overwhelmed by emotions.
But it’s not just your portfolio that needs looking after – so does your mind. A walk, meeting up with friends or consciously taking time out from the markets will help you to gain the necessary distance.
Because at the end of the day, one truth remains: the world has an infinite number of fascinating facets to offer.
And none of them are as important as the volatile ups and downs of the stock markets.
With this in mind, I wish you all the best.
Kind regards
Stefan
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