Global markets underwent a seismic response to last Wednesday’s announcement of sweeping tariffs by US President Trump. As we brace for inevitable aftershocks in the days ahead markets have already reacted – the US S&P500 Index declined by -9.05% (compared to -12.4% during the great financial crises and -13.9% during Covid) and the South African Johannesburg All Share Index also declined by more than -7% at the time of writing.

The temptation to do something in response to major events is ever-present. In times like these, it’s wise to remember that not taking action and not making knee-jerk decisions, is a decision in itself.

The Trump administration has been unpredictable. Policy pronouncements that seem to be pointing in one direction one day can easily reverse course the next. It’s difficult to predict the downstream result of any given policy change in advance.

One of the best ways to tune out the market noise is to go back to basics. If that feels hard right now, here are some helpful steps.

Stay the course and focus on the long-term

For investors with a long-term perspective, short-term market stress is a distraction that is better off ignored. While the market could be in for a bumpy ride over the next few weeks, it’s best to stay the course and avoid making any major portfolio changes based on the latest headlines.

Remember why the markets react the way they do

Prices of the instruments traded in financial markets are determined by the supply and demand of investors. It is during short bouts of market distress that investors let their emotions get the better of them resulting in premature selling of instruments. This drives the price of these instruments to move even lower, creating new opportunities for other investors who might see value in these instruments. In turn, it reverses market momentum and prices begin to rise.

The best days often come after the worst days

As illustrated in the graph below, the worst days in financial markets are often followed by the best days. Highlighting March 2020 (Covid), markets sold off aggressively resulting in some of the biggest one-day losses in history. This heightened uncertainty made investors feel uncomfortable and many felt they had to take action to limit their losses.

As can be seen in the graph below if an investor disinvested at the bottom of the sell-off and moved into cash to wait for the volatility to subside it would have resulted in significant losses.

• R100 invested on 31 December 2019 would have grown to R127,
• An investor that remained in cash throughout the same period, R105,
• An investor that disinvested on 19 March 2020 and missed the following three days in the market would have ended with R103
• An investor that disinvested on the same day and remained in cash would have ended with R69.

Remember what history has taught us

When markets fall sharply, it’s only natural to be concerned and think about moving money to less risky investments (such as cash options) with a plan to switch back later. Yet as history has shown, it is important to remain invested at times of market volatility to enable your investments to benefit when the market rebounds.

For investors with a long-term perspective, short-term market stress is a distraction that is better off ignored. While the market could be in for a bumpy ride over the next few months, it’s best to stay the course and avoid making any major portfolio changes based on the latest headlines and keep in mind that markets go up over time despite short-term volatility.

As can be seen below, although it’s a bumpy ride, markets have proven to recover over time. 

In closing

In the face of heightened volatility, it is understandable to feel uneasy – but it’s precisely during these periods that staying calm and committed to your investment strategy matters most. History has repeatedly shown that markets are resilient, often recovering strongly after significant downturns. Attempting to time the market not only risks missing the recovery but can also undermine long-term returns. Instead of reacting to headlines or short-term noise, investors are better served by focusing on their long-term goals, maintaining a diversified portfolio, and trusting in the power of time and discipline. In investing, doing nothing isn’t inaction – it’s a strategy.